Global Supply Chain Management - Meadow Foods Company - Case Study Example

Global Supply Chain Management Supply chain management is gaining importance in business organizations due to increasing customer expectations. Globalization and technological advancement have contributed to increasing customer awareness and supplier or producer competitiveness. In order for the organizations to ensure adequate response to growing consumer needs, they have integrated suppliers and buyers in the supply chain and taken appropriate measures to ensure effective management of the supply chain. However, the efficiency of any supply chain operations should reflect in increased value creation for the consumers and the organizations. This document examines the supply chain management theory and elaborates various obstacles to effective supply chain management. The study is based on milk industry in UK with a focus on Meadow Foods Company. The study establishes that supply chain of an organization is complex, but with effective management and collaboration with various participants the organization can reduce or eliminate the obstacles to increasing business efficiency. Table of Contents Abstract 2 Introduction 4 Understanding Supply Chain Management Theory 5 The integration process in an organization can be of various types. A successful supply chain management requires integration of materials, customers, services suppliers, technology, planning, measurement, relationship and internal integration of processes (Emerald Group Publishing Limited). However, there are three dimensions of supply chain integration namely information integration, organizational relationship linkage, and coordination and resource sharing. 5 Supply chain structure 6 Milk Industry Supply Chain Management 9 The main issue with the supply chain for the milk is supply chain operators. This power inequality has resulted in issues during price setting. For instance, when supermarkets decide to offer price discounts to their consumers they transfer the cost to the farmers instead of reducing their profit margin to cater for the discounts extended to their customers (Emerald Group Publishing Limited, 2014). They do so by pushing the down the price at which they buy milk from the processors. The processors in turn transfer the cost to the farmers resulting in low farm gate price of the fresh milk. The situation is very unscrupulous to the extent that some of the farmers cannot afford to meet the cost of producing milk. If the situation is not arrested in time, there is a high likelihood for most of the farmers to run out of business (Wisner et al., 2011). The milk vendors will result in purchasing milk from outside UK. The consequences of such decision will be increased consumption of unhealthy milk thus posing a health risk to the final consumers. 9 Meadow Foods Supply Chain 10 Source; (Emerald Group Publishing Limited, 2015) 11 Obstacles to effective supply chain management 12 The silo mentality 12 Lack of trust 14 In the milk supply chain, trust is achieved through the constant exchange of information between the players in the entire chain. It is essential for all participants to realize that trust is for their benefits and agree to disclose full information to each other (Lysons & Farrington, 2012). Without trust, the entire supply chain will collapse or become useless to the participants. For example, if the consumers suspect that processors are buying milk from others countries they may decide to boycott buying milk from the supermarkets since their fear that milk produced in other countries may not be fit for human health. Such action will have tripple effect even to the local producers because of lack of market for their milk (Crocker, & Emmett, 2012, 208). 14 Lack of knowledge 15 Conclusion 15 Ancarani, A. & Zsidisin, G. A, 2015, Journal of Purchasing & Supply Management, Vol. 21(2). Retrieved from http://www.journals.elsevier.com/journal-of-purchasing-and-supply-management/ 16 Crocker, B., Jessop, D. & Morrison, A., 2011, Inbound Logistics Management: Storage and Supply of Materials for the Modern Supply. Pearson: 317 16 Crocker, B. & Emmett, S. 2012, The Relationship-Driven Supply Chain: Creating a Culture of Collaboration throughout the Chain. Gower Publishing, Ltd: 208 16 Emmett, S. & Crocker, B., 2010, Excellence in Global Supply Chain Management: Understanding and Improving Global Supply Chains. Cambridge: 292 Emerald Group Publishing Limited, 2015, The International Journal of Logistics Management. Vol. 25(3). Retrieved from http://www.emeraldinsight.com/loi/ijlm 16 Emerald Group Publishing Limited, 2014, Supply Chain Management: An International Journal, Vol. 20(2). Pp. 113. Retrieved from http://www.emeraldinsight.com/journal/scm 17 Guide, D. & Ketokivi M., Journal of Operations Management, Retrieved from http://www.journals.elsevier.com/journal-of-operations-management/ 17 Milano, 2015, UK Pavilion Milan 2015. 4-12 Retrieved from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/321989/MilanExpo_UK_Pavilion_brochure_June_2014.pdf. 18 Introduction This document examines the supply chain of Meadow Foods industry in UK. Meadow food is the largest independent supplier of milk and dairy ingredients to the food industry (Emmett & Crocker, 2010). The company operates three factories at Yorkshire, Chesire and Peterborough and a sales office at Oxfordshire. They manufacture a wide variety of dairy ingredients such as fresh creams, butter, and milk, cultured and sweetened products used by the leading manufacturer in UK (Ancarani & Zsidisin, 2015). Global supply chain management refers to the management of the flow of products and services across the border. Organizations are involved in purchasing of goods or services for their internal or external clients from suppliers or vendors located in other areas. The management of supply chains entails movement and storage of raw materials, inventory of work-in-progress and final products or finished products from the point of source to point of consumption (Bakker et al., 2012). The rapidly changing technology and globalization have necessitated organizations to source for goods and services from other across the border in order to enjoy and improve their performance. The success of any organization in the current competition in the business environment depends on how effective the organization can manage distribution, inventory, information flow and product designs to satisfy the needs of its customers and improve performance (Lindsey & Michelle, 2014). The emerging global business competence centres on international suppliers, outsourcing of processes and satisfying customers’ requirements across the globe. The main focus of global supply chain management is to improve customer satisfaction and create value for the organization and their customers (Martindale, 2014). Therefore, supply chain management involves designing, planning, execution, control and monitoring of supply chain undertakings with a goal of creating value and competitive structure for customer satisfaction improving organizations performance. Understanding Supply Chain Management Theory The fundamental goal of SCM is to deliver value to the final consumers and all the partners involved in the supply chain system. However, in order for the organizations in the supply chain network to achieve these goals they must integrate process approach with internal and external operators in the system. The integration of the process implies that all operators in the network must “collaborate and share information and resources to jointly manage a process” (Emmett & Crocker, 2010, p. 292). It is an approach to restructuring and linking parts of the whole in order to establish a new process. However, the process integration can pose challenges because requires adequate training and readiness, competent business partners, willingness and readjustment of organizational cultures. It is because of the benefits the organizations enjoy from shared information that necessitate the issue of process integration (Williams, 2012, p. 21). Such benefits may include reduction in supply chain costs, increase flexibility to respond to market changes, low safety stock in the supply chain, improved quality of the products, reduced lead time and improved utilization of organizational resources. Therefore, the SCM cannot be successful without adequate collaboration between the buyers and suppliers, mutual product development, collective systems and shared information (Crocker, Jessop & Morrison, 2011). Adequate information flow across the supply chain partners is critical to the successful implementation of the process approach. The integration process in an organization can be of various types. A successful supply chain management requires integration of materials, customers, services suppliers, technology, planning, measurement, relationship and internal integration of processes (Emerald Group Publishing Limited). However, there are three dimensions of supply chain integration namely information integration, organizational relationship linkage, and coordination and resource sharing. Supply chain structure Source (Wisner, Tan & Leong, 2011) The common trend in global purchasing is that organizations are relinquishing their ownership of sources of raw materials and distribution channels as they strive to increase their core competencies and become more flexible (Pullman & Wu, 2012). The aim is to outsource such products and services from other organizations that have capacity to offer those activities better and cost effectively. Global supply chain management has the effect of increasing the number of organizations involved in creating customer satisfaction for their demands while minimizing administrative controls of day-to-day logistics processes (Williams, 2012). Supply chain management increases trust and partnerships among the supply chain partners thus improving inventory discernibility and speed of movement of inventory. Due to the globalization and technology that have changed customer expectations, organizations are relying on efficient supply chains or networks to improve their competitiveness in the global economy (Williams, 2012). Globalization, information technology, and outsourcing have helped the major global organizations to operate collaborative supply chains efficiently whereby specialized business associates concentrates on only a few fundamental strategic activities. However, little is known about the inter-organizational supply network. There is no definite information about the influence the performance of different supply chains structures could have on the organizations or the conditions and trade-offs existing among the various participants in the supply network (Williams, 2012). Just as aforementioned, various factors have contributed to the establishment of supply chain networks. For example, the effects of globalization, the creation of multinational organizations, strategic associations, joint venture and business partnerships have exhibited substantial success elements that supplements the earlier strategic practices such as lean production, just-in-time and agile production (Pullman & Wu, 2012). In addition, the improvement in technology that has resulted in drastic fall in communication charges has improved the relationships among the supply chain network participants. A successful supply chain management involves a transition from control of an individual role to incorporating activities into fundamental supply chain practices. It requires collaborative processes between buyers and vendors, mutual product improvement, shared information and conventional systems. Adequate information flow plays a critical role in the establishment of integrated supply chain (Williams, 2012). However, most organizations are implementing a process approach in order to optimize product flow. An example of some of the supply chain processes include management of customer relationship and customer service, demand management strategy, order fulfillment, management of manufacturing flow, administration of supplier relationship, development and commercialization of products and return control. According to Afifi and Stonebraker (2004), the fundamental business supply processes include management of customer services, procurement, development and commercialization of products, management of manufacturing flow, physical delivery, outsourcing, performance measurement and management of warehouses. Organizations are enjoying great benefits in the global market through effective management of their supply chains. Companies are focusing on their areas of their competence and outsourcing other process. Through effective supply chain, management organizations can increase their capabilities by offering providing customers with products at competitive prices (Lysons & Farrington, 2012). Therefore, it is upon individual organizations to establish the areas of their competences and effective outsourcing of other areas. It implies that an organization requires effective relationship with the suppliers in order to establish reliable suppliers for their outsourced processes. Milk Industry Supply Chain Management Six primary factors drive the milk supply chains in UK. These are; deregulation, supermarket strategies, food safety and supply chains integration, innovation, environmental sustainability and rationalization of supply base (Pullman & Wu, 2012, P. 12). Globalization and liberalization of trade have transformed agri-food industry. They have resulted in opening up of the international market to trade and exposed the domestic market to high competitions, aided by advances in transport and communication technologies. These transformations created opportunities for the retailers to increase their margins (Crocker, Emmett & Moore, 2010). However, strategies used by supermarkets created power imbalance between various players in the supply chains. For example, they standardized international prices for their branded milk that set a new floor for the price of the dairy products. One of the main reasons the supermarket use this strategy is to attract more consumers to their premises in order to increase sales of both milk and other products (Leong, 2005). The issue of customer sensitivity and food safety awareness have contributed to increasing in supply chain integration (Lysons & Farrington, 2012). This is because more than ever before consumers are interested in knowing more about the products they purchase, its composition, and the source of ingredients and how the products are produced throughout the supply chain. The main issue with the supply chain for the milk is supply chain operators. This power inequality has resulted in issues during price setting. For instance, when supermarkets decide to offer price discounts to their consumers they transfer the cost to the farmers instead of reducing their profit margin to cater for the discounts extended to their customers (Emerald Group Publishing Limited, 2014). They do so by pushing the down the price at which they buy milk from the processors. The processors in turn transfer the cost to the farmers resulting in low farm gate price of the fresh milk. The situation is very unscrupulous to the extent that some of the farmers cannot afford to meet the cost of producing milk. If the situation is not arrested in time, there is a high likelihood for most of the farmers to run out of business (Wisner et al., 2011). The milk vendors will result in purchasing milk from outside UK. The consequences of such decision will be increased consumption of unhealthy milk thus posing a health risk to the final consumers. Meadow Foods Supply Chain The UK dairy industry has over 13,000 dairy producers. It has complicated supply chain. Supermarkets have established contracts with various processors who are responsible for purchasing fresh milk from farmers. Processors purchase all milk produced by the farmers and then process the milk into various dairy products sold in different market outlets. The milk industry chains in UK were shaped by deregulation of the dairy industry and supermarket plans of contracting processors. The significant transformations that occurred in the industry include increasing consumer awareness, innovation rationalisation of supply base, food safety and environmental concerns and supply chain integration (Lysons & Farrington, 2012). In response to the changes in the market requirements processors became more proactive in their associations with the retailers, innovative to maximize returns from proprietary brands and strategic in developing a mix of customer portfolio and suitable management arrangements for service that portfolio (Williams, 2012, p. 32). These strategies assisted in expanding businesses to realize production and cost competences as well as reinforce contractual relationship on in input and output side to improved security. The integrations of supply chains, product innovations, and process approach have revolutionized the process of production, distribution, and marketing of products. The meadow company technical manager claimed that since the horsemeat scandal there has been increasing customer awareness about the quality of the products and particularly the source of the products (Meadow Foods Limited, 2015). The customer wants Meadow foods to keep traceability record of the supplier and avoid shifting suppliers without involving the customers. There is also increasing traceability audit conducted to establish the food safety and environmental health. Source; (Emerald Group Publishing Limited, 2015) Meadow foods are involved in the procurement of input from various suppliers located in different regions. They distribute data for processing. The processing the final products are to distribute to various consumers across the country. The use of ICT has enabled the company to control various operations within the company. For example, the company uses M3 computer-based traceability to conduct traceability audit (Milano, 2015). The company has formed a contract with suppliers and consumers of its products to ensure continuous supply of products and reduced inventory cost. They process most of their products in order to add value to the consumers (Meadow Foods Limited, 2015). Most of their consumers are industrial manufacturers of foods such as confectionary and bakery industries. Others include wholesalers and retailers of cheese, milk, etc. Obstacles to effective supply chain management The success of supply chain management practices depends on how effective an organization is capable of integrating the processes along the supply chain. The silo mentality To achieve a successful supply chain management, an organization must establish strategies to overcome its functional silos and appreciate a process approach. These require the commitment of leadership and executive support to change. Also, the organization must understand and appreciate the appropriate degree of change for effective management (Ellram, Carter & Autry, 2015). Furthermore, the organization must align its supply chain management with fundamental processes. In addition, the organization must commit the necessary resources and empowerment towards the accomplishment of its specific goals (Wisner et al., 2011). Therefore, if these four critical requirements are missing the situation will turn into an obstacle for those dedicated to implementing the supply chain management in the organization. The most unfortunate thing about the organizations committed to implementing the SCM is that culture of resistance to change (Guide & Ketokivi). The functional silo approach is comfortable with the status quo since they are familiar with it hence this creates an obstacle to the successful implementation of SCM. Additionally, the executives are reluctant to relinquish the approached that helped them rise to the top of a functional silo (Bakker et al., 2012). Therefore, such organizational culture and commitment to functional silos thwarts any efforts of the organization to establish successful SCM. However, in case of any existence of a threat to the very survival of the business will oblige the acceptance of change by executives and other relevant stakeholders in the organization. Silo mentality occurs in situations where firms have not recognized the effect of their actions on the supply chain and its long-term competitiveness and profitability. Silo mentality expresses itself in the form of using low-cost suppliers, giving little attention to the customer requirements and allocating limited resources to new products and service design (Matthew et al., 2008). Ultimately, these companies create issues of inferior quality, cost, delivery timing, and other customer service problems that are injurious to the supply chain. Silo mentality is one of the major problems affecting supply chain in fresh milk supply chain in UK. The supermarkets have tried to improve the quality of the supply chain by contracting the processors to ensure smooth flow of products and increase customer satisfaction. However, the silo effects are manifested in the way supermarkets are setting selling for their won label milk in order to increase value for their customers at the expense of milk producers (Harvard Business Publishing, 2015). This causes a problem in the supply chain because some milk producers can easily run out of business while supermarkets, processors and customers enjoy the benefits created by the supply chain. However, the customers are also at risk because there is likelihood that processors will start purchasing milk from other producers in other countries. This means even consumers are likely to take milk that they have no guarantee for its safety. To address these issues there is a need for the constant flow of information throughout the chain and make decisions that can create value for all participants in the supply chain (Christopher, 2013, p. 288). For example, the milk farmers are forming forward contracts on feeds and contracting with processors to ensure the fair price of milk that can sustain them in the supply chain because of better negotiation skills. Lack of trust Effective process integration between supply chain partners requires trust. Lack of trust is also a major obstacle to supply chain management. Although initially the partners have little or no trust for each other, this is developed with time as each partner earns trust and build a reputation among other partners. A relationship based on mutual trust results to a win-win scenario for the participants (Clifford, Wesley & Brian, 2009, p. 31). However, trust is one of the hardest quality in the integration process because a slight deviation in the behavior of one participant contrary to the expectations or agreement with other partners can jeopardize the entire supply chain. In the milk supply chain, trust is achieved through the constant exchange of information between the players in the entire chain. It is essential for all participants to realize that trust is for their benefits and agree to disclose full information to each other (Lysons & Farrington, 2012). Without trust, the entire supply chain will collapse or become useless to the participants. For example, if the consumers suspect that processors are buying milk from others countries they may decide to boycott buying milk from the supermarkets since their fear that milk produced in other countries may not be fit for human health. Such action will have tripple effect even to the local producers because of lack of market for their milk (Crocker, & Emmett, 2012, 208). Lack of knowledge Even as firms and all partners in the supply chain process on the integration of chains the new technology that facilitates the integration of processes is growing faster than some of the participants can fathom. For example, some members lack fundamental SCM skills and knowledge thus making it a great obstinacy within individual organizations and for their trading partners. This calls for the support of the managers to persuade and educate the participants in their own firms and their trading partners to do the acceptable thing (Clifford et al., 2009, P. 31). Such approach will improve the networking of the farmers and increase the flow of information and knowledge on SCM. All the participants should be thoroughly involved resource planning and training processes in order to increase the competitiveness of the integration process. Conclusion The supply chain management plays a critical role in the ensuring improvement of the company’s performance and enhancing customer satisfaction. Various companies have different supply chain depending on the nature of products, the industry in which they are operating, the level of growth of the company, etc. A well-managed supply chain will result in smooth operations to the extent that customers may never realize the various chains in which the products or services are involved. However, when there is a problem in the chain such as the issue of food safety customers gets concerned about the various operations across the supply chain. This has been witnessed in the case of Meadow Foods where customers are increasingly concerned about the sources of products and want to be informed when a company decides to shift the suppliers. There are various obstacles to efficient supply chain such as inadequate knowledge, lack of trust and silo mentality among the parties in the chain. The organizations must strive to overcome these obstacles in order to achieve effective SCM. List of References Afifi, R. & Stonebraker, P.W. 2004, “Toward a contingency theory of supply chains”, Management Decision, Vol. 42(9). pp. 1131-44. Retrieved from http://www.emeraldinsight.com/doi/abs/10.1108/00251740410565163 Ancarani, A. & Zsidisin, G. A, 2015, Journal of Purchasing & Supply Management, Vol. 21(2). Retrieved from http://www.journals.elsevier.com/journal-of-purchasing-and-supply-management/ Bakker, F., Boehme, T. & Donk, D. P. 2012, Identifying barriers to internal supply chain integration using Systems Thinking; University of Wollongong. Retrieved from http://ro.uow.edu.au/cgi/viewcontent.cgi?article=3830&context=commpapers Clifford, D. C., Wesley, S. R., Brian, J. 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K. 2011, Principles of Supply Chain Management: A Balanced Approach Williams, J. 2012, Competition and Efficiency in International Food Supply Chains: Improving Food Security, Routledge. Pp. 1-260. Read More