Purchasing and Supply Chain Management

Introduction  

Competition in contemporary business has undergone considerable change. Wong (2003) is of the view that ‘competition is changing from firm versus firm basis to supply chain versus supply chain basis’ (p. 159).  Ali and Shukran (2016) define a supply chain as a network of firms.  Thus, in managing the supply chain, organizations should seek to establish linkages between different upstream and downstream stakeholders (Chen, Sohal & Prajogo 2013). Supply chain management has become an essential element in businesses’ quest to achieve operational efficiency. The core purpose of supply chain management is to enhance the effectiveness with which businesses utilize their suppliers’ resources to enhance their competitive edge.  According to Lavastre, Gunasekaran, and Spalanzani (2014), the global market requires competitiveness within the entire supply chain. To achieve this goal, businesses must develop collaboration with the different stakeholders in the supply chain.

         Tesco operates as a public limited firm in the UK retail sector.  The firm attained a competitive market position in the sector. One of the factors that have contributed to the attainment of a strong competitive edge entails the integration of supply chain management. The firm has entrenched supply chain management as one of its core long-term goals.

Despite entrenching advanced supply chain management systems, business management teams must ensure that the best supply chain management practices are applied. Amongst the supply chain management practices that a firm’s management teams should take into consideration entails supply chain risk management.   Ali and Shukran (2016), risk is an inherent aspect of every business operation.  Thus, risk management has become one of the organization’s key long-term goals.  This paper entails an analysis of supply chain risk management and collaboration. The analysis focuses on how supply chain risks can be managed through collaboration. The analysis is undertaken concerning the case of Tesco Plc.

Literature review

The rapidly changing business environment, technological innovation, and globalization have created the need for organizations to optimize the performance of their entire supply chains (Switala 2016). Thus, organizations should not only focus on the health of their internal supply chain processes (Cao & Zhang 2013).  Ali and Shukran (2016) assert business performance is not only influenced by changes that emanate from the supply side but also by risks that emanate from the demand side. Subsequently, the need for organizations to integrate effective supply chain risk management practices is critical.  Supply chain risk entails the likelihood of an organization’s supply chain being disrupted hence creating the potential for incurrence of loss (Ali & Shukran 2016). Supply chain risk can be categorized into two main classes including operational risks. This category of risk arises from the existence of a mismatch between supply and demand. This type of risk results in the failure of organizational processes and systems. The second category of risk entails disruption risk that arises from natural or man-made disasters. Examples of sources of disruption risk include earthquakes, strikes, terrorism, and floods (Kleindorfer & Saad 2005).  

 Despite extensive academic research studies, Switala (2016) asserts that most organizations are yet to understand the concept of supply chain collaboration. Chen, Sohal, and Prajogo (2013), argue that firms are increasingly striving to achieve strong supply chain collaboration to leverage the knowledge and resources inherent amongst their suppliers and customers. The rationale of collaboration is to minimize supply chain risk (Chen, Sohal & Prajogo 2013). Collaboration occurs when two or more autonomous organizations work together in planning and implementing different operational activities. Regarding supply chain, Almeida et al. (2015) assert that collaboration entails the establishment of a working relationship with the supplier’s organization, in which the two organizations act as if they were one single organization’ (p. 500). In line with this definition, supply chain collaboration is one of the notable facets of collaboration that businesses should integrate into their operation (Islam, Karim & Habes 2015). This may be the ultimate source of an organization’s core capability.  Cao and Zhang (2013) emphasize that ‘being opposed to collaboration these days is a bit like being against quality or maybe even profitability’ (p.1).

To enhance collaboration with different supply chain stakeholders, businesses must consider developing an effective collaboration framework. The core aspects that businesses should focus on in establishing a collaborative framework are outlined herein.

1. Developing aligned strategic objectives; stakeholders in the supply chain, for example, suppliers and retailers should ensure that their operations are aligned to broad strategic objectives. All the stakeholders should be committed to achieving these objectives. The rationale for aligning strategic objectives is to ensure that the supply chain objectives are long-term in nature as opposed to short-term.
2. The single version of the truth; the stakeholders should ensure that the information shared by the respective parties is accurate. This aspect is critical in minimizing the occurrence of operational risk, which is one of the core sources of supply chain risk.
3. Data-driven and insight-led; the collaboration between stakeholders should be based on advanced analytics to effectively and efficiently provide the stakeholders’ insight on the performance of the supply chain.
4. Customer focus; collaboration within the supply chain should focus on maximizing customer value. 
5. Time-bound and balanced key performance indicators; collaboration between the stakeholders should further be based on clearly stipulated performance indicators.  Retailers and suppliers should establish a consensus about the performance indicators applicable to the supply chain.

 Hewlett-Packard, Procter and Gamble, and International Business Machines are some of the international organizations that have based their long-term competitiveness on the establishment of collaborative relationships with suppliers (Hallikas et al. 2004).  The rationale of establishing a collaborative relationship is underlined in the fact that it contributes to the establishment of an idiosyncratic relationship amongst the different stakeholders (Zsidisin & Ritchie 2008). Through such collaboration, the likelihood of achieving operational efficiency is remarkably improved. This arises from the sharing of knowledge and integration of effective governance mechanisms.  Cao et al. (2010) assert that collaborative relationships enable organizations to access information that can be valuable in creating knowledge.  Moreover, collaboration provides businesses with an opportunity to share risks. Regarding risk, past studies show that collaboration constitutes an effective approach through which businesses can manage risks that might arise in the supply chain. Other benefits associated with collaboration are that it enables organizations to access complementary resources, minimize logistical and transaction costs, and stimulate productivity.

Findings

Tesco Plc has developed an extensive product portfolio such as grocery, non-food items, and other general merchandise.  One of the factors that have contributed to Tesco’s success in developing an extensive product portfolio entails its capacity to establish and maintain a strong relationship with thousands of its suppliers.  Tesco’s commitment to establishing and nurturing collaboration with different stakeholders in the supply chain has enabled the firm to sustain the supply chain relationship.  Tesco has established a strong supply chain relationship with farmers.  One of the notable approaches through which the firm manages relationships with suppliers is through contracting. For example, in 2007, Tesco developed a two-year contract that was intended to ensure that the suppliers of f beef and mutton products provide it with a steady supply of beef and mutton.  In addition to the establishment of contracts with suppliers, Tesco has formed Sustainable Farming Groups, which are comprised of lamb and beef farmers.  The Chartered Institute of Purchasing and Supply (2014) asserts that the firms’ rationale in establishing the group was ‘to build relationships and trust between the company and its farmers’ (p.).

Tesco has established a supplier network that is comprised of over 5,000 suppliers. The collaboration that Tesco has established with suppliers has enabled the firm to foster and maintain an optimal product procurement process. For example, the suppliers can supply their ordered merchandise within the stipulated timeframe and quality criteria. It is estimated that over 2.1 billion cases of products are shipped into Tesco retail stores annually.

Through its effective supply chain management, Tesco has been able to create value for its customers which is a fundamental aspect of the firm’s quest to nurture customer loyalty. A review of the firm’s supply chain practices further shows that the firm has been able to maintain high on-shelf product availability. One of the factors that have enabled the firm to achieve this outcome entails effective information and material flow between the different stakeholders in the supply chain.    

Analysis

The findings above reveal that Tesco is focused on establishing an effective supply chain.  One of the fundamental issues that Tesco has taken into account in its supply chain management entails collaboration. Amongst the factors that have motivated Tesco to establish collaboration with its suppliers entails the need to foster a seamless operation.  Collaboration has further enabled the firm to nurture a culture of information sharing which is one of the best supply chain management practices. A report by Noone and Wilson (2016) asserts that ‘Tesco’s supply chain network enables its colleagues to directly connect with the supply base, improve transparency, and communication’ (p.2). Tesco’s commitment to the establishment of positive supply chain collaboration has contributed to a remarkable reduction in supply chain risk. For example, the firm’s collaboration with suppliers of different grocery and foodstuffs such as bananas, rice, fruits, and meat products has greatly reduced production risk which is one of the key types of operational risk.  Leat and Revoredo-Giha (2013) assert that production risks are associated with crop production issues.  Manuj, Esper, and Stank (201) further accentuate that the establishment of long-term collaborative relationships between stakeholders within the supply chain is critical in enhancing an organization’s performance. This arises from the fact that collaboration acts as a risk mitigation strategy. One of the most effective ways through which collaboration has enabled Tesco to mitigate supply chain risk entails the adoption of collaborative practices about the identification of sources of risk, contingency planning, and collaborative monitoring of the supply chain.   

Through these practices, Tesco has been able to manage supply chain risk through the application of the SAM model, which emphasizes the importance of effective identification of sources of risk, undertaking risk assessment, and subsequent mitigation of supply chain risk (Kleindorfer & Saad 2005). Ali and Shukran (2016) assert that ‘there is a strong correlation between integrative efforts and firms performance in terms of growth in return on investment, better profit margins on sale, customer satisfaction, responsiveness, and market performance’ (p. 339).  As a result of collaboration with the different stakeholders in the supply chain, Tesco has succeeded in minimizing the occurrence of the Bull Whip Effect (BWE). According to Almeida et al.  (2015), ‘BWE occurs when demand order variability in the supply chain are amplified as they move up the supply chain from retailer to manufacturer’ (p.495).  One of the most effective ways through which an organization can minimize occurrence of BWE entails nurturing trust and collaboration amongst the different stakeholders in the supply chain.

Recommendations  

The report underlines the importance of supply chain risk management in organizations’ quest to achieve long-term sustainability. The report reveals that Tesco has undertaken significant efforts to mitigate the occurrence of supply chain risk through the integration of collaborative practices in the firm’s operation.  The firm’s success in mitigating the occurrence of supply chain risk has arisen from the integration of collaborative practices between upstream and downstream stakeholders in the supply chain. To improve the effectiveness through which Tesco mitigates supply chain risk through collaboration, Tesco’s management team should take into account the following issues.

1. The firm should continuously evaluate the possible challenges that might affect collaboration amongst the supply chain stakeholders.
2. The firm should ensure that its collaboration with stakeholders is based on a long-term goal as opposed to a short-term goal. This will play a critical role in enhancing the effectiveness of its supply chain by minimizing the occurrence of risks such as operational and disruption risks.

References

Ali, I & Shukran, K 2016, ‘Managing supply chain risks and vulnerabilities through collaboration; present and future scope’, The Journal of Developing Areas, vol. 50, no. 5.

Almeida, M, Marins, F, Salgado, A, Santos, F & Silva, S 2015, ‘Mitigation of the bullwhip effect considering trust and collaboration in supply chain management; a literature review’, International Journal of Advanced Manufacturing Technology, vol. 77, pp. 495-513.

Anastasiadis, F, Poole, N & Wagner, B 2015, ‘Emergent supply chains in the agrifood sector: insights from a whole chain approach’, Supply Chain Management: An International Journal, vol. 20, no. 4, pp. 353-368.

Aramyan, LH, Kooten, V, Lansink, A.G.J.M & Vorst, J 2007, ‘Performance measurement in agri-food supply chains: A case study’, Supply Chain Management: An International Journal, vol. 12, no. 4, pp. 304-315.

Cao, M & Zhang, Q 2013, Supply chain collaboration; roles of inter-organizational systems, trust, and collaborative culture,  Springer, London.

Cao, M et al. 2010, ‘Supply chain collaboration; conceptualization and instrument development’, International Journal of Production Research, vol. 48, no. 22.

Chartered Institute of Purchasing and Supply:  Strategic supply chain management 2014. [Online]. Available at: https://www.aba-procurement.com/wp-content/uploads/PD3-Nov-2014-Case-Study.pdf  (Accessed  June 15, 2017)

Chen, J, Sohal, A & Prajogo, D 2013, ‘Supply chain operational risk mitigation; a collaborative approach’, International Journal of Production Research, vol. 57, no. 1.

Halliday, J, Karvonen, I, Pulkkinen, U, Virolainen, V-M & Tuominen, M 2004, ‘Risk management processes in supplier networks’, International Journal of Production Economics, vol. 90, no. 1, pp. 47-58.

Islam, MM, Karim, M & Habes, EM 2015, ‘Relationship between quality certification and financial & non-financial performance of organizations’, The Journal of Developing Areas, vol. 49, no. 6, pp. 119-132.

Kersten, W, Blecker, T & Ringle, C 2013, Sustainability and collaboration in supply chain management; a comprehensive insight into current management approaches,  EUL Verlag, Lohmar.

Kleindorfer,  P & Saad, G 2005, ‘Managing disruption risks in supply chains’,  Production and Operations Management,  vol. 2, no. 8.

Lavastre, O, Gunasekaran, A & Spalanzani, 2014, ‘Effect of firm characteristics, supplier relationships, and techniques used on supply chain risk management (SCRM): an empirical investigation on French industrial firms’, International Journal of Production Research, vol. 52, no. 11, pp. 3381-3403.

Leat, P & Revoredo-Giha, C 2013, ‘Risk and resilience in agri-food supply chains: the case of the ASDA PorkLink supply chain in Scotland’, Supply Chain Management: An International Journal, vol. 18, no. 2, pp. 219-231.

Manuj, I, Esper, TL & Stank, TP 2014, ‘Supply Chain Risk Management Approaches Under Different Conditions of Risk’, Journal of Business Logistics, vol. 35, no. 3, pp. 241-258.

Switala, M 2016, ‘Enterprises readiness to establish and develop collaboration in the area of logistics’, Scientific Journal of Logistics, vol. 12, no. 3, pp. 215-224.

Wong, A. 2003, ‘Achieving supply chain management excellence’, Total Quality Management, vol. 14, no. 2, pp. 151-159.

Zsidisin, G & Ritchie, B 2008, Supply chain risk; a handbook of assessment, management, and performance, Springer, New York. 

Appendix

Reflective Summary

Supply chain risk poses a significant threat to organization’s long term success. This arises from the fact that supply chain risk might disrupt an organization’s operational efficiency and hence its capacity to generate revenue. Therefore, it is imperative for organizations’ management teams to entrench effective supply chain management practices. This course has provided critical insight on the positive correlation between supply chain risk and collaboration. The course has led to development of new knowledge on the role of collaboration in mitigating supply chain risks. However, to improve the effectiveness of collaboration in establishing strong relationship between the respective stakeholders in the supply chain, the report underlines the importance of entrenching an effective collaboration framework. Some of the core issues that should be considered in establishing the framework include, developing strategic aligned objectives, ensuring that the supply chain is based on truth, nurturing a data-driven and insight-led collaboration, ensuring customer focus, and ensuring that collaboration is based on time-bound and balanced key performance indicators.  Therefore, the course has led to development of a better understanding on the importance of entrenching a holistic approach in managing supply chain risk by fostering collaboration between upstream and downstream stakeholders.