ABB Group - Strategic Operations Issues - Case Study Example

Strategic Operations Issues Name: Lecturer: Course: Date: Executive Summary Supply chain management encompasses planning and management of activities involved in sourcing and procurement, conversion and the whole set of logistics management operations. It also encompasses group effort and coordination with partners down the channel. This report takes on the assumption that construction supply chain and logistics undergo myopic control, since underlying problems are manifest due to problems in supply chain management. Analysis of ABB Group, a Swiss-based engineering firm that specialises in supply of construction equipment for construction companies, is examined in this respect. ABB Group specialises in supply of construction equipment for construction companies. In 2011, it secured a contract with QGC Pty Limited’s Queensland Curtis LNG to supply safety, automation and telecommunications equipment for an upstream coal seam gas project, in Queensland, Australia. The company’s organisational culture however influences unfriendly work practices and sometimes regulations, which constraint supplier and the clients’ efforts. It also faces several problems in order fulfilment. Other problems include bullwhip effect, poor follow up activities and coordination with QGC Pty Limited. The ABB has also failed to stress on service excellence, which often leads to poor services provided to QGC Pty Limited’s Queensland project. The company also encounters challenges in acquisition of refined management knowledge for novelty construction projects. It is recommended that ABB should build inventories to ensure that products flow both intermittently and smoothly. It should also leverage effective information sharing to promote the success of supply chain management. Table of Contents Executive Summary 2 Table of Contents 3 Introduction 4 Description of ABB 5 Operational issues and problems that needs addressing 6 Order fulfilment 6 Problems with costs 6 Poor coordination and follow up actions 6 Poor management of supply chain firms 7 Manpower issues 7 Analysis of the problem 8 Five main performance objectives of operations management 8 Changes to performance or outcomes 9 Potential improvement 10 Issues with management of transaction costs 12 Recommendations 13 Building inventories 13 Effective information sharing 13 Conclusion 14 Works Cited 14 Introduction Lambert and Cooper (65–83) describes logistics as “inbound and outbound flow and storage” of commodities inside or between businesses. According to Ali et al. (2-7), logistics is a constituent of supply chain management aimed at mapping out, implementing and managing efficient flow of stored commodities between the point of origin and point of consumption, in order to meet customer demands. Naude and Badenhorst-Weiss (71-73) sees supply chain as consisting of a network of organisations that play a part in a range of activities, through upstream or downstream linkages. Overall, they bring value to the business in form of commodities in the hands of the eventual consumer. From this, it could be perceived that supply chain management encompasses planning and management of overall activities involved in sourcing and procurement, conversion and the whole set of logistics management operations. It also encompasses group effort and coordination with partners down the channel (Storey & Emberson 754-774; Slack 373). This report takes on the assumption that construction supply chain and logistics undergo myopic control, since underlying problems are manifest due to problems in supply chain management Description of ABB ABB is a Swiss-based engineering firm with operations in Australia. It currently operates an offshore project in Australia. It specialises in supply of construction equipment for construction companies. In particular, ABB Group secured a contract with QGC Pty Limited’s Queensland Curtis LNG in 2011 in a project that requires ABB to supply safety, automation and telecommunications equipment for an upstream coal seam gas project, in Queensland, Australia (ABB Australia 2011). ABB has operations in Queensland where it was tendered by QGC Pty Limited to supply construction materials and equipment for its oil and gas drilling project, called Queensland Curtis LNG. This report shows that oil and gas projects encounter a range of intricacies in operations management, deepened involvement in international trade and complex project sizes (Vrijhoef & Koskela 29-35). Therefore, realisation of project objectives is a challenge because of problems in logistics and supply chain management. Under these circumstances, coming up with contracting strategy is the principle determinant of the project success (Schramm et al. 33-40). Among such projects include Engineering, Procurement and Construction (EPC), which refer to a single-point contract that is granted to a contracting company that undertakes the entire procurement, engineering, and construction activities (EPC Engineer 1). In effect, ABB projects are mainly EPC, such as process procurement and construction engineering (ABB Australia 2011). Operational issues and problems that needs addressing Order fulfilment ABB faces several problems in order fulfilment. First, there is the problem of supply chain shortages. Second, the problem of delays in deliveries has been a major source of concern. ABB is faced with the problem of accurately forecasting supplies for the client. ABB also counters problems associated with bullwhip effect, where erratic shifts in orders occur down the supply chain. While the actual sales in ABB stores are stable, orders ABB receives from its distributors witness swings that create production and inventory problems for the company. The distributors’ orders also fluctuate due to price fluctuation, poor forecasts in demand, order rationing and order batching. Distorted information cons tributes largely to the significant inefficiencies, delays in delivery, inefficient shipment and erroneous delivery schedules. Problems with costs The oil and gas projects are inherently complex in nature as they are made up of a vast array of interconnected elements and subsystems that call for significant expertise and financial commitment. A major problem however comes when the construction and building professionals at the client firm often tend to emphasise on cost reduction, which in turn underscores and describes the strategies needed to manage the supply chain. Poor coordination and follow up actions A major problem facing ABB’s supply chain management is poor follow up activities and coordination with QGC Pty Limited. This has often led to construction delays, which in turn delayed the Queensland Curtis LNG Project. Underlying causes of the problem are lack of supervisory activities and follow up activities. For instance, information acquired from strategic meetings between ABB and QGC Pty Limited is often not shared to other parties within the network of suppliers that ABB subcontracts. Other causes include nonexistence of local branches, particularly, at the momentous corridors across Australia. Poor management of supply chain firms The ABB has also failed to stress on service excellence, which often leads to poor services provided to QGC Pty Limited’s Queensland project. On the other hand, the construction and building professionals at the client firm often tend to emphasise on cost reduction, which in turn underscores and describes the strategies needed to manage the supply chain. Although cost should not be regarded as irrelevant, by emphasising on costs, focus on financing supply chain is constrained, which has in turn constrained ABB’s efforts. ABB, which in itself is a supply chain firm, encounters challenges in acquisition of refined management knowledge for novelty construction projects, such as that of the Queensland Curtis LNG Project. Similarly, the client firm, in this regards the Queensland Curtis LNG Project, may have limited formal training and understanding of logistics, regardless of the fact that they encounter enormous tasks within their logistics umbrella. For instance, the oil and gas projects are intrinsically complex in nature as they are made up of a vast array of interconnected elements and subsystems that call for significant expertise and financial commitment. This, however, is not always the case (Lambert & Cooper 65–83). Manpower issues Within the Queensland Curtis LNG Project oil and gas EPC project, the various complex interconnected components and subsystems need substantial human efforts, which are subject to manpower issues, including organisational culture. Cases of antagonistic issues such as culture shocks, racism, lethargy or poor work attitudes influence unfriendly work practices and sometimes regulations, which constraint supplier and the clients’ efforts (Vrijhoef & Koskela 40-44). For example, QGC Pty Limited has at some instances set up stringent rules that stipulate time slots for ABB to make delivery in order to prevent lethargic tendencies and poor work attitudes where ABB has often been a culprit. This has however been antagonistic to a greater extent. For instance, truck-loads of construction equipment in many cases have arrived early or late. In both cases, QGC Pty Limited denied them access to the project in Queensland or remained unloaded or turned away because ABB had violated the designated time. Analysis of the problem Five main performance objectives of operations management The five basic performance objectives include quality, dependability, speed, flexibility and cost. They are analysed below based on total quality management (Slack 32). In regards to quality, it means that ABB has to do things right through provision of error-free services, which will satisfy the client. ABB has to supply good quality construction equipment that are eco-friendly and efficient. In terms of speed, ABB has to do things fast in order to minimise time wastage between the order and availability of the service or product that gives the client speedy advantage. Currently, the company faces issues of making late deliveries. Additionally, the tools ABB supplies should reduce complexity to reduce speed needed in interpreting the functionality of the machine (Slack 32-34). In regards to dependability, ABB has to undertake its contracted services in time to allow the client firm receive goods when orders are made. ABB can use just-in-time products systems combined with multi-skilled team-based workers. 'Kanban control' will also allow the team to deliver products as promised. Flexibility is also a critical objective, which underscores the need for ABB to change its services and products in accordance with changes in the way it does business. At this stage, being flexible and responsive organisation is critical. Pricing is also a critical objective, specifically where ABB competes with prices set out by competitor firms. Low pricing is a universally attractive objective to clients that ABB can attain through production of goods at lower costs (Slack 32-34). Figure 1: objectives of operations management Changes to performance or outcomes Based on the above objectives of operations management, it is apparent that ABB has adjusts the costs, output, quality, productivity of its services. In particular, the concept of supply chain management has existed within the construction industry over the last three decades­, where it has been used to reflect on the independent managerial concept that is still subjugated by logistics. Supply chain management aims to oversee the entire scope of supply chain (Petrovic-Lazarevic et al. 2006). The concept provides a methodology that can be used in mitigating short-sighted control within the supply chain that brings about wastage and problems at ABB. Studies have explored trends on how progressively more contractors are purchasing construction materials than before and concluded that they are also becoming gradually more dependent on other players within the supply chain (Vrijhoef & Koskela 40-44). In spite of this, poor coordination of supply chain activities and alliance encumbers efficient supply chain management. Vrijhoef and Koskela (45-47) established that the construction industry is a potentially low-productivity industry since delays and poor coordination are apparent in circumstances where workers at the site take plenty of time waiting for arrival of materials at the site. In regards to supply chain management as a principle, the concept of business process integration is drawn to the fore. Awad and Nassar (52-60) suggest that in principle, the process of supply chain management has to be coordinated between all companies within the supply chain, to achieve improved logistics and supply chain management performance and service. This form of external process integration, which is also known as value chain coordination, needs to be what the management focuses on. Potential improvement According to Awad and Nassar (52-60), despite the rapid development of the construction industry, service excellence is not stressed on. Hence, this has inspired the need to have a more refined management of the supply chain firms, contracted by the Queensland Curtis LNG Project. An additional issue that faces supply chain management is that of sustainability, which impacts ABB’s supply chain and logistics network. At the same time, it is usually quantified by comparing it with SECH (social, ethical, cultural, and health' footprints) rating, which employs the use of triple bottomline that combines social, ethical and environmental aspects (Oracle n.d.). ABB has become increasingly aware of the social and environmental impacts of procuring and transporting construction materials. Additionally, some studies have showed that construction companies are increasingly considering environmental performance issues in their criteria for choosing suppliers. QGC Pty Limited is one such company. Due to this, ABB is expected to comply with the SECH rating prescribed. Indeed, studies have indicated that the supply chain may account for up to 75 percent of a construction firms’ carbon footprint (Amaeshi et al 223-234). Consequently, researchers within the supply chain have examined ways in which this can be reduced to improve their SECH rating (Seuring & Muller 2008). Several concerns have been raised in this regard. A case in point is the collapse of the Savar building in 2013 that killed some 1,120 victims, as a result, triggering extensive debate on corporate social responsibility among the global chains (Wieland & Handfield 1; Ahmed & Lakhani 1). Findings by Wieland and Handfield (1) indicated that firms need to audit their suppliers’ corporate social values as well as establish direct relations with the first-tier suppliers. The critical manpower issues that affect ABB’s supply chain management include the issues of culture. Awad and Nassar (52-60), describe culture as the varied patterns of values and beliefs or learned methods that individuals apply in coping with values and experiences that they encounter in the course of the history of the organisation. Culture also manifests in material arrangements as well as in the organisational members’ behaviours. While the QGC Pty Limited has often associated the late deliveries to the culture of lateness, the late deliveries are sometimes caused by conditions that are beyond the control of ABB, including bad weather, traffic jams or bad roads. Under such circumstances, there should be a drive to establish a close relationship between the supplier and the contractor, where the two come up with consented practical measures that can ensure effective governance, so as to trim down the errant supplier’s behaviours as well as the tendency of the contractor coming up with traditional bid-buy interactions or antagonistic regulations. Issues with management of transaction costs There is sometimes the need for ABB to outsource business processes and to create supply chain externally. In this regards, there is a need for regular assessment of where the subcontracted organisation’s boundary should be set. Hence, ABB needs to carry out constant assessment of the advantages of integration against that of the market provision. This implies that the decision ABB makes on whether to outsource needs be based on the transaction cost approach, which hypothesises that comparative cost of planning needs to be examined, in addition to where task completion is evaluated, through alternative governance structures (Lambert & Cooper 65–83). The decision to outsource should in this case be centred chiefly on management of the recurrent transactions. The key dimensions in this context comprise asset uncertainty relevant to the transaction. This is the dimension that is likely to vary in the oil and construction project, which may create varied contexts where the outcome is likely to be diversity within the governance structures. Recommendations Building inventories It is recommended that ABB should build inventories that should serve as insurance against risks in order fulfilment of uncertainties. This will ensure that products flow both intermittently and smoothly. At this stage, proper supply chain management and inventory management calls for coordination of all diverse activities and supply chain links to allow goods to move efficiently and promptly from ABB to the client. This is likely to keep inventories at low-cost. Here, coordination between ABB and other QGC Pty Limited’s supply chain partners is paramount. Effective information sharing There should be effective information sharing between ABB and QGC Pty Limited, as well as other QGC Pty Limited’s supply chain partners, as this will promote the success of supply chain management. Here, information system has to be designed to promote easy information sharing. An examples information sharing is where QGC Pty Limited shares information to ABB on a daily basis from the project site, so that when inventories decrease, shipment is triggered. Conclusion ABB Group specialises in supply of construction equipment for construction companies. The company’s organisational culture influences unfriendly work practices and sometimes regulations, which constraint supplier and the clients’ efforts. It also faces several problems in order fulfilment. Other problems include bullwhip effect, poor follow up activities and coordination with QGC Pty Limited. The ABB has also failed to stress on service excellence, which often leads to poor services provided to QGC Pty Limited’s Queensland project. The company also encounters challenges in acquisition of refined management knowledge for novelty construction projects. It is recommended that ABB should build inventories to ensure that products flow both intermittently and smoothly. It should also leverage effective information sharing to promote the success of supply chain management. Works Cited Ahmed, S & Lakhani, L. “Bangladesh building collapse: An end to recovery efforts, a promise of a new start,” 2013. 18 Aug 2014 Amaeshi, K, Osuji, O, & Nnodim, P. “Corporate Social Responsibility in Supply Chains of Global Brands: A Boundaryless Responsibility? Clarifications, Exceptions and Implications.” Journal of Business Ethics, 81. 1 (2008): 223-234 Awad, H & Nassar, M. “A Broader view of the Supply Chain Integration Challenges," International Journal of Innovation, Management and Technology, 1.1 (2010): 52-60 EPC Engineer. “EPC - Engineering Procurement Construction,” n.d. . 18 Aug 2014, Schramm, C., Meibner, A. & Weidinger, G. “Contracting Strategies in the oil and gas industry,” 3R International, 1 (2010): 33-40 Slack, N, Brandon-Jones, A, Johnston, R and Betts. Operations and Process Management. 3rd edn, Prentice Hall: New York, 2012 Jaafar, A., Ali, R., and Mohamad, S. Logistics and Supply Chain in Malaysia: Issues and Challenges, EASTS International Symposium on Sustainable Transportation incorporating Malaysian Universities Transport Research Forum Conference 2008 (MUTRFC08). Universiti Teknologi Malaysia. 12-13 August 2008 Lambert, Douglas and Martha Cooper. "Issues in Supply Chain Management." Industrial Marketing Management 29 (2000): 65–83 Naude, M. and J.A. Badenhorst-Weiss. "Supply chain management problems at South African automotive component manufacturers." Southern African Business Review 15.1 (2011): 70-100 Storey, J. & Emberson, C. "Supply chain management: theory, practice and future challenges," International Journal of Operations & Production Management, 26. 7 (2006): 754-774 Vrijhoef, R & Koskela, L. Roles of Supply Chain Management in Construction, University of California, Berkeley, 1999 Wieland, A. & Handfield, R. “The Socially Responsible Supply Chain: An Imperative for Global Corporations,” Supply Chain Management Review, 17.5 (2013) Read More