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manufacturing industryin the
supply chain management
Duy Kiet Tran(10210856)
Kardin Edista(10029508)
Saumya Kandoi(10185674)
Tutor:
Heidi Sundin
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Table of Contents
Quick Find Contents ...............................................................................................2
Executive Summary ................................................................................................3
1.0 Introduction.......................................................................................................5
2.0 Problems & Risks..............................................................................................6
2.1 Supply disruption .......................................................................................................................................... 6
2.2 Information integrity...................................................................................................................................... 8
2.3 Planning supply and demand........................................................................................................................ 10
2.4 Compliance and regulation .......................................................................................................................... 12
3.0 Solutions and social context evaluation ...........................................................13
3.1 Reducing supply disruption risk................................................................................................................... 13
3.2 Information integrity management ............................................................................................................... 14
3.3 Improving supply and demand planning....................................................................................................... 16
3.4 Strategies for regulatory compliance ............................................................................................................ 18
4.0 Conclusion & Recommendations ....................................................................20
References ............................................................................................................21
Appendix ..............................................................................................................23
Individual Assignment Evaluation Sheets .............................................................27
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Quick Find ContentsP
robl
ems
&R
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Are
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Supply DisruptionSection 2.1
Information IntegritySection 2.2
Ineffective supply anddemand
Section 2.3
Regulatory complianceSection 2.4
Infl
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pric
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stra
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Section 2.1.3 Section 2.2.4 Section 2.3.5 Section 2.4.3
Rec
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enda
tion
san
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luti
ons
Section 3.1 Section 3.2 Section 3.3 Section 3.4
;Eva
luat
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ina
soci
alco
ntex
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Section 3.1.2 Section 3.2.3 Section 3.3.3 Section 3.4.2
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Executive Summary
Objectives
This paper primarily identifies the supply chain (SC) problems commonly faced by
manufacturing firms and their impacts on pricing strategy to the entire SC. A range of solutions
are suggested to address these problems, furthermore the applicability of each of these solutions
significantly depends on their social ramifications that are systematically evaluated.
Methods and data sources
A series of research studies were conducted and the information presented in the entire paper is
abstracted from a variety of authoritative data sources, namely, scientific and practitioner
literature, and survey-based reports.
Key findings
It was identified that the major problems commonly faced by manufacturing firms were:
• Supply disruption risk acts as a logistical impediment;
• Inaccuracy and inconsistency of information breed inefficiency between SC entities;
• Uncertainty in supply and demand jeopardises the decision making capabilities of
manufacturing firms; and
• Regulatory compliance stagnates the dynamism of the SC.
Conclusion
Several solutions are suggested to address these problems. Firstly, supplier disruption risk can be
remedied by utilising various suppliers and global outsourcing. Secondly, information integrity
can be enhanced by standardisation and embracement of new technology. Thirdly, planning of
supply and demand can be improved by organisational leadership, SC and value re-engineering
and multi-enterprise collaboration. Finally, regulatory compliance can be addressed by
establishing a total risk management culture for total quality management.
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Recommendations
The most crucial of the abovementioned solutions to the manufacturing industry for effective
supply chain management is the embracement of new technologies, specifically e-manufacturing
and instilling a risk management culture with senior management acting as catalysts.
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1.0 Introduction
SC management constitutes the series of interdependent upstream, manufacturing and
downstream processes targeted at transforming raw materials into products to meet customer
demand1.
In the backdrop of global markets, increased competition and extended SCs manufacturing firms
are now confronting new challenges. The need to eliminate waste, embrace new technologies,
improve on supplier/ customer relations, better manage inventory, comply with regulation, and be
more cost efficient is becoming more apparent in the quest to achieve operational excellence.
Most manufacturers compete in oligopolistic markets where it is necessary to consider
competitive behaviour before devising a pricing strategy. Furthermore, pricing strategies in SC
management brings into context the value chain where it is necessary consider the value added
through each process of the chain and the value perceived by customers.2
1 Slack N, Chamber S, Harland C, Harrison A, Johnston R 1998 “Operations Management” 2nd Edition PitmanPublishing
2 Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 “Management Accounting and Australian Perspective”, 3rd
Edition McGraw Hill, Sydney
Figure 1: Illustration of the upstream, manufacturing and downstream activities within the SC. Adapted fromreference 1.
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2.0 Problems & Risks
2.1 Supply disruption
2.1.1 SC disruption poses technical or behavioural problems for manufacturers. Technical
problems include equipment malfunctions, system failures, and financial distress; while labour
strike and human fraud are behavioural problems. In addition, disruption may occur from other
uncontrollable events such as natural disasters and terrorism. 3
2.1.2 Since there are strong connections among components of the SC itself, the effect of a SC
disruption will have differing levels of impact on each element of the SC4. If the interruption
cannot be addressed immediately, it will lead to some malfunctions of manufacturing activities.
Interruptions take place at the first two stages of the chain will eventually affect the distribution
function (example in appendix D).
2.1.3 To demonstrate how pricing strategies are affected by supply disruption, three elements that
influence that pricing decision need to be considered: marketing positioning, customer value
3 Paul R. Kleindorfer • Germaine H. Saad, Managing Disruption Risks In SCs, Poms Production And OperationsManagement, Vol. 14, No. 1, Spring 2005, Pp. 53–68
4 J.L. Gattorna and D. W. Walters (1996), Managing the SC: A Strategic Perspective, MacMillan Press Ltd, England
Figure 2: Illustration of the drivers of supply disruption and the resolution process. Adapted from reference 3.
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and competitor behaviour5. Firstly, the market position of the manufacturer who suffers from
the disruption risk will change due to the loss of market share and inventory. Secondly, the
economic value to customer (EVC) of the manufacturer’s product might be reduced due to
attacks of competitors. As a whole, the pricing strategy of the manufacture is influenced because
of the disruption of supplier.
5 Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 “Management Accounting and Australian Perspective”, 3rd
Edition McGraw Hill, Sydney
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2.2 Information integrity
2.2.1 As e-commerce increasingly becomes a crucial tool for information sharing and SC
integration a major problem for any organizations is the risk that information becomes,
inaccurate, incomplete and unsynchronised.6 (See appendix A & B)
2.2.2 Betts (2001) demonstrates the problem through the various ways in which a particular
supplier or customer such as IBM can be entered into a SC software as either:
• IBM Corp
• I.B.M Corporation, or
• International Business Machines Corp.
Whilst a difference in a name seems trivial, this diversity will project false information in
identifying the volume and value of doing business with IBM7.
2.2.3 Incomplete and unsynchronised information can arise from the different data formats
operating under different information systems within the SC8. In information sharing SC
networks, when corrupt or false information generated from one part of the SC is passed along
the SC all entities will be affected both internally and externally9.
2.2.4 La Londe (2003) argues that the lack of accurate or standard information adversely affects
costing data, a crucial element for establishing a competitive pricing strategy10. Consequently,
decision would be based on false measurements regarding:
6 Poor data management had cost global businesses more than $1.4 billion per year in billing, accounting andinventory disorder, according to a survey by PricewaterhouseCoopers (Betts, 2001).
7 Betts, B. (2001) “Dirty Data”, Computerworld, Vol 35, Issue 51
8 Humayun, B. (2004) “Web Services Yield Simply E-commerce” Information week, Issue 1013 CMP Media
9 Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 “Management Accounting and Australian Perspective”, 3rd
Edition McGraw Hill, Sydney
10 La Londe, B.J. (2003) “SC Management Review”, Reed Elsevier Inc
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• A products resource consumption;
• The effectiveness of deployed capital;
• The economic contributions of entities within the SC
In the case of inconsistent information such as the IBM example, the organisation will be unable
to determine the correct value of business conducted with its suppliers and customers ultimately
limiting its capacity to negotiating favourable trading deals or volume discounts11. Consequently,
organisations using substandard information results in sub-optimal pricing strategies,
diminishing competitive advantage and lower market share.
11 Betts, B. (2001) “Dirty Data”, Computerworld, Vol 35, Issue 51
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2.3 Planning supply and demand
2.3.1 Forecasting and adapting to changes in demand and supply is applicable to the entire SC
affecting upstream, manufacturing and downstream processes and arises from factors within and
external to the organisation.
2.3.2 Manufacturing firms are often departmentalised into ‘functional silos’ resulting in a lack of
collaboration, information flows and accountability among internal functions which in turn
distorts effective decision making. The result is material and product shortages, excessive on-
hand inventories, lack of labour utilisation and on-time delivery issues12.
2.3.3 Externally, lack of SC agility affects the ability of firms to respond rapidly to unpredictable
changes in demand and supply. SC agility has two aspects – visibility and velocity, both of
which prevent the firm from gauging the demand for its products which in turn manifests errors
in forecasting supply of raw materials13.
Most manufacturers that fail to achieve sufficient visibility don’t have a clear view of upstream,
production and downstream inventories not only because of the lack of internal communications
mentioned above, but also a lack of integration between suppliers and customers.
Firms lack velocity due to an inability to quickly move goods from one end of the SC to another
either because of long in-bound lead times or non-value adding processes. Global outsourcing
might lead to increased length and complexity; in other words, process inefficiency, of the SC
itself especially because of political instability in different countries at different periods 14.
These issues are becoming increasingly apparent with the outsourcing of manufacturing to low
cost countries such as China thus increasing lead times for manufacturers and their customers15.
12 Peck H., Martin C (2004), Building the Resilient SC, The International Journal of Logistics Management /Volume15 No.2 2004 pg 1-11.
13 Peck H., Martin C (2004), Building the Resilient SC, The International Journal of Logistics Management /Volume15 No.2 2004 pg 1-11
14 Robb, S. P., A. Bailey. 2003. Risky Business: Corruption, Fraud, Terrorism & Other Threats to Global Business,Revised edition. Kogan Page Ltd., London, United Kingdom
15 Dalziel A. (2005), Gartner Advice on Global SC Management, Intentia Headlines, No 2. 2005, pgs 4-6.
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2.3.4 The lack of visibility and velocity results in the bullwhip effect. Even a small amount of
unplanned demand from any one customer oscillates back through the SC often resulting in
costly disturbances to manufacturers who need to quickly acquire and process more raw materials
and reschedule production which negatively resounds on business performance through excess
inventories, overtime expenses and shipping costs 16,17.
2.3.5 Manufacturers may not be able to pass on costs to customers due to contractual obligations
and those who do pass on the incremental cost of additional production may face the
opportunity cost of losing the customer. This scenario may force firms into market-based
pricing, often at a sacrifice of their income18 .
16 Donovan R.M. (2005), SC Management: Cracking the Bullwhip Effect Part 3, Available:www.edm1.com/donovan.pdf
17 Management consultant RM Donovan indicates that a common complaint by many manufacturers is that of‘unknown’ sale promotions by their customers which ripple through the SC with the costs of additional productionbeing borne by the manufacturer.
18 Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 “Management Accounting and Australian Perspective”, 3rd
Edition McGraw Hill, Sydney
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2.4 Compliance and regulation
2.4.1 The imposition of regulatory standards on manufacturing firms limit their flexibility and
dynamism (appendix H). Lax screening of these regulations on a regular basis is often at the root
of the problem which often causes companies to be accused of breaches of ethical trading
practices when doing business19.
2.4.2 All activities in the SC are subject to regulation such as environmental and quality
standards, labour and consumer laws. For example, regulation pertaining to waste reduction
initiatives requires the SC to incorporate a reverse logistics component to accept used products
for recycling. Furthermore restrictions on certain materials usage for production will pressure
manufacturers to establish new manufacturing processes which can result in major changes to the
timing and resource usage of production goods. Litigation due to non-compliance of these rules
not only influences on a particular party but also attacks the entire SC competitive asset i.e.
reputation20.
2.4.3 Legal setbacks can largely affect customers’ perceptions of the economic value of the
product or service. As a result, firms need to put more effort to certify the economic value to the
customers (EVC) which mainly affects the pricing strategy of the firm21.
Manufacturers and their constituents within the SC must now incorporate the costs of complying
with extended regulatory activities and procedures in to the cost of their products (appendix 2).
Furthermore the risk of litigation puts additional weighting on contingent liability accounts.
2.4.4 Protiviti’s survey found deficiencies in post-contract management and in the
implementation of regulations such as the Sarbanes-Oxley Act in the US22, (see appendix E).
19Ian Gilchrist, View Point: Beyond Compliance; Social Accountability Can Protect Companies And Profits,Asiaweek, Hong Kong, Apr 13, 2001. pg. 1
20 Ian Gilchrist, View Point: Beyond Compliance; Social Accountability Can Protect Companies And Profits,Asiaweek, Hong Kong, Apr 13, 2001. pg. 1
21 Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 “Management Accounting and Australian Perspective”, 3rd
Edition McGraw Hill, Sydney
22 O’Keeffe, P. (2004) “Understanding SC Risk Areas, Solutions, and Plans, A Five Part Series”, Protiviti IntegratedRisk Consulting
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3.0 Solutions and social context evaluation
3.1 Reducing supply disruption risk
3.1.1 It is suggested to engage with several suppliers of critical materials and embrace global
outsourcing in order to mitigate supply disruption risk23. This methodology implies the chain can
never be significantly disrupted if the major supplier is no longer eligible to be part of the chain
and enables flexibility for manufacturers to obtain resources worldwide rather than relying on
domestic supplier1.
However, a larger number of contracts with multiple suppliers might lead to a higher level of
inventory24. This solution might not be desirable for those firms with low inventory turnover
since stocking a large quantity of inventory exposes companies to a higher level of inventory
cycling and obsolescence risk. Manufacturers can avoid these negative outcomes by having a
lead supplier and keeping other sources available or single source by each product manufactured.
3.1.2 While ethically questionable, Suppliers can exert bargaining power over single-supplier
manufacturers by threatening to raise prices or reduce the quality of purchased products.
Powerful suppliers can thereby squeeze profitability out of an industry unable to recover cost
increases in its own prices25.
In addition to the issues with global outsourcing discussed in section 2.3.3, manufacturers may
also contract and thus support unscrupulous suppliers with abysmal employee safety and
environment records. Thus risk mitigation comes at a social cost, especially in low cost
countries such as China where a PwC survey revealed that employees face barriers to freedom of
association, insufficient wages and compensation, excessive working hours and poor health and
safety standards.26
23 C. F. Ho, Y. P. Chi, and Y. M. Tai (2005), A Structural Approach to Measuring UncertaintyIn Supply Chain, International Journal of Electronic Commerce / Spring 2005, Vol. 9, No. 3, pp. 91–114.
24 Certain suppliers may invoke contractual obligations that require manufactures to continuously maintain certainlevels of inventory
25 Dowlatshahi, Shad, Production & Inventory Management Journal, 1999 1st Quarter, Vol. 40 Issue 1, p27-35, 9p; (AN
11934250)
26 Fabian T. Hill C. (2005) “CSR & The Ethical Supply Chain”, PricewaterhouseCoopers UK LLP
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3.2 Information integrity management
3.2.1 Betts (2001) argues that standardising data by establishing business rules regarding the
semantics of data will eliminate the diverse methods of conveying information27.
Standardisation provides an economical and effective method of ensuring that information
exchanged within the SC is communicated with consistency. It also creates a prevention
mechanism for misinterpreting information and can identify when data is entered incorrectly28.
3.2.2 Embracement of new technology enables automation to SC activities and eliminates the
need for manual processes. New technology such as radio frequency identification or (RFID)
tags, display terminals and wireless web technology can decrease the probability of inaccurate
information caused by human error and enhance information integrity (see appendix C).
Recognising the vital role that technology plays in SC management is E-manufacturing. E-
manufacturing is a technology orientated ideology that aims for complete integration between the
manufacturing operations and the functional objectives of the enterprise.29,30
3.2.3 Macintosh (1985) points out that mechanisms such as standardising business rules,
installing new technology and committing to regulate information integrity can lead to
organisational inefficiencies. That is, from a human relations perspective, information systems
and control mechanisms are viewed as an oppressive tool used by upper management to
27 The below points provides examples of the many ways in which the same type of information can becommunicated:
• Pants, slacks or trousers• 06-03-2001 as June 3 or March 6• “Invoice Date” referring to the date the supplier put on the invoice, or the date the invoice was received?
28 Betts, B. (2001) “Dirty Data”, Computerworld, Vol 35, Issue 51
29 Lee, J (2003) “E-Manufacturing – fundamental, tools and transformation”, Robotics and Computer IntegratedManufacturing Issue 19, pp 501 -507
30 E-manufacturing addresses the problems of incomplete and unsynchronised information by promoting thedevelopment of a single information system that provides the platform for synchronising manufacturing systems ande-business systems including Customer relation management (CRM), SC Management, (SCM), Business-2-Business(B-2-B) and e-Commerce systems such as EDI.
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relentlessly and unilaterally drive up unrealistic production goals and furthermore used as an
unfair means of evaluating performance.31
Whilst strategies such as participation of all stakeholders in the decision and implementation of
new processes has provided some respite to the conflict, studies have shown participation leads to
productive inefficiency caused through organisational slack.32 Furthermore, La Londe (2003)
argues that two major barriers to information integration (achieved through the embracement of
technology)33 as:
1. The cultural bias toward current system and processes caused by IT illiteracy and acting
an impediment for choosing the next information system.
2. The prevailing management style that uses information as power, postulating that for
most traditional managers the last item on their agenda would be for integrated
information system that dissipates their power inside and outside of the company.
Similarly Koch (2002) warns that embracing new technology changes the way people do their
jobs. The biggest mistake firms make is assuming that changing people’s habits is trouble-free
and therefore when the SC entities are resistant to change failures are likely to occur 34,35 .
31 Macintosh, N. (1985) “The Social software of Accounting & Information Systems” Chapter 3 pp25-40, JohnWiley & Sons, London
32 This means that organisational slack can result in line managers opting for higher allowances for data error thanwhat in reality can be achieved
33 La Londe, B.J. (2003) “SC Management Review”, Reed Elsevier Inc
34 Koch, C. (2002) “The ABC’s of ERP”, CXO Media Inc. Available:http://www.cio.com/research/erp/edit/erpbasics.html
35 A recent Deloitte Consulting survey of 64 Fortune 500 companies, 25 percent reported a drop in performancewhen their ERP system went live. The major contributing factor to the performance problems was that people couldnot do their jobs in the familiar way and had not yet mastered the new way, consequently they panic and the businessgoes into spasms.
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3.3 Improving supply and demand planning
3.3.1 To breakdown the ‘functional silo’ mentality examined in Section 2.3.2 requires
organisational leadership from senior management who must drive teamwork, collaboration
and a culture of shared risk management.36
Sales, marketing, finance, supply, and operations must work closely to integrate plans, recognize
risks, and present recommendations to senior management who then make decisions. Policy and
process translate these decisions to specific actions and schedules37.
3.3.2 One way to eradicate problems in relation to SC agility is through SC and value
reengineering. The process of SC re-engineering requires a manufacturer to gain an
understanding of SC bottlenecks and critical paths from which it can formulate a strategy to
redesign the SC. Methods to address are supply sourcing, already discussed in section 3.1.1,
efficiency vs. redundancy trade-off38 and multi-enterprise collaboration through the use of IT
to improve the exchange of information amongst suppliers and customers thus improving SC
visibility39.
36 O’Keeffe, P. (2004) “Understanding SC Risk Areas, Solutions, and Plans, A Five Part Series”, Protiviti IntegratedRisk Consulting
37 Peck H., Martin C (2004), Building the Resilient SC, The International Journal of Logistics Management /Volume15 No.2 2004 pg 1-11
38 The trade-off implies that even if excess production capacity is redundant it allows the firm to be more efficient incoping with demand surges and avoiding the swings as suggested by the bullwhip effect.39 Peck H., Martin C (2004), Building the Resilient SC, The International Journal of Logistics Management /Volume15 No.2 2004 pg 1-11
Figure 3: The diagram depicts the planning process and the role of senior management. Adapted from reference #35.35.
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3.3.3 While these solutions are effective, their feasibility may be questioned when viewed in a
social context. Senior management participation, teamwork and SC re-engineering require
changes in the culture of an organisation. Employees who are comfortable in their job may resist
the culture change which would cause tension between staff and management, and stress to
employees which in turn would be detrimental to the effectiveness and efficiency of the
organisation.
The establishment of multi-enterprise collaboration and I.T. solutions may result in structural
unemployment amongst lowly-skilled workers who are not willing and are not able to adapt to
the new technologies. The loss of jobs will understandably have negative consequences on the
staff affected, but the organisation will also suffer by losing the SC knowledge that these
employees held40.
40 Jackson, McIver (2001), “Macroeconomics”, 6th Edition, McGraw Hill Companies, Australia
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3.4 Strategies for regulatory compliance
3.4.1 Regulations are either complied with or violated. This paper does not divulge nor promote
the use of unlawful practices that depart from the conditions set in the relevant legislation
however, Gilchrist (2001) suggest the following strategies can help manufacturers to better cope
with the regulations and avoid breaches in trading practices (example in appendix H):
• Ensure employees and partners have a legitimate and creditable history
• Conduct preliminary assessments of facilities to ensure integrity of security, safety
measures and waste management procedures.
• Clarify expectations to suppliers through contractual obligations to comply with your
standards.
• Monitor progress and revise risk minimising goals continually
• Form strategic alliances to lobby against impracticably stringent laws
The implementation of such a SC risk management culture entail increased dialogs with
consumers, employee empowerment and to raise the level of communications among parties
regarding the corporate social responsibilities such as environment, health of employee and work
safety issues assist in engendering a greater level of compliance control throughout the entire
organisation and among interactive parties. It also assists total quality management through the
empowerment of employees and an emphasis on the smooth flow of activity41.
To complement theses actions manufactures can also undertake to acquire ISO 4001
accreditation which recognises that the organization has met the International Standards
Organisation for monitoring, environmental or employment practices.
3.4.2 Advocates of employee empowerment suggest that employees who have a stake of the
entity would have a long-term view and generate high productivity and other gains to the SC.
However, a paper released by the US National Bureau of Statistics in April, 2005 found that such
41 Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 “Management Accounting and Australian Perspective”, 3rd
Edition McGraw Hill, Sydney
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change of corporate governance led to an opposite effect42. Employee shareholders indeed tended
to take less risky and less long-term investments to secure their jobs and their day-to-day
concerns dwarfed the prosperity of the SC. This builds upon the concept of organisational slack
discussed in section 3.2.3.
Lobbying governments may compromise environmental responsibility of firms and give rise to
bribery and corruption.
42 Mary Kwak(2005), MIT Sloan Management Review: Is Employee Ownership Counterproductive? Cambridge:Summer 2005. Vol. 46, Iss. 4; p. 8
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4.0 Conclusion & Recommendations
The continuing pursuit to an efficient and effective SC is not without its set-backs and obstacles.
As illustrated in Figure 4, there are a range of problems and corresponding solutions presented
SupplyDisruption
Informationintegrity
Planning supplyand demand
RegulatoryCompliance
Several suppliers � �
Global outsourcing � �
Standardisation of information format �
Embracement of new technology � � � �
Organisational leadership � �
SC and value re-engineering � �
Multi-enterprise collaboration � �
Contract management � �
Risk management culture � � � �
The table conclusively suggests that adoption of information technology and implementation
of a risk management culture are universal solutions to the problems outlined. This is not to
discount the value added from other solutions but serves as to which solutions most critically
require implementation in contemporary supply chain management.
Before accepting such solutions an astute SC manager should heed the social ramifications which
each solution presents. The matter of bargaining power wielded by large suppliers over smaller
participants can breed conflicts of interest within the SC and disengage entities from working
towards a unified goal. Moreover the conflict between the human relation schools and
management accounting regarding whether control mechanisms play a productive role within the
organisations still remains unresolved. In addition, global outsourcing solutions breed process
inefficiency through extended lead-times. Ultimately, as entities within an integrated SC are
unique and different no one solution will provide a panacea to the problems in SC management.
The SC manager must therefore use sound judgement in deciding which solution will best suite
both the organisation and the SC itself.
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References
• Betts, B. (2001) “Dirty Data”, Computerworld, Vol 35, Issue 51
• C. F. Ho, Y. P. Chi, and Y. M. Tai (2005), A Structural Approach to Measuring Uncertaintyin Supply chains, International Journal of Electronic Commerce / Spring 2005, Vol. 9, No. 3,pp. 91–114.
• Companies Report Widespread, costly asset tracking problems Frontline solutions; Oct 2001;2,11, ABI/INFORM Global Pg.10 Source: Australian, The, OCT 04, 2005
• Dalziel A. (2005), Gartner Advice on Global SC Management, Intentia Headlines, No 2.2005, pgs 4-6.
• Donovan R.M. (2005), SC Management: Cracking the Bullwhip Effect Part 3, Available:www.edm1.com/donovan.pdf
• Dowlatshahi, Shad, Production & Inventory Management Journal, 1999 1st Quarter, Vol. 40Issue 1, p27-35, 9p; (AN 11934250)
• Fabian T. Hill C. (2005) “CSR & The Ethical Supply Chain”, PricewaterhouseCoopers UKLLP
• Gopal, G. McMillan, E. “Synchronisation: A cure for Bad Data Innovation” New ways ofSC Management Review – May/June 2005
• Humayun, B. (2004) “Web Services Yield Simply E-commerce” Information week, Issue1013 CMP Media
• Jackson, McIver (2001), “Macroeconomics”, 6th Edition, McGraw Hill Companies, Australia
• J.L. Gattorna and D. W. Walters (1996), Managing the SC: A Strategic Perspective,MacMillan Press Ltd, England
• Koch, C. (2002) “The ABC’s of ERP”, CXO Media Inc. Available:http://www.cio.com/research/erp/edit/erpbasics.html
• Logistics Advertising Report (2005), International Logistics: Katrina’s Challenge, TheAustralian Sep 26, 2005, p6
• Macintosh, N. (1985) “The Social software of Accounting & Information Systems” Chapter 3pp25-40, John Wiley & Sons, London
• Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 “Management Accounting andAustralian Perspective”, 3rd Edition McGraw Hill, Sydney
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• La Londe, B.J. (2003) “SC Management Review”, Reed Elsevier Inc
• Lee, J (2003) “E-Manufacturing – fundamental, tools and transformation”, Robotics andComputer Integrated Manufacturing Issue 19, pp 501 -507
• O’Keeffe, P. (2004) “Understanding Supply Chain Risk Areas, Solutions, and Plans, A FivePart Series”, Protiviti Integrated Risk Consulting
• Paul R. Kleindorfer • Germaine H. Saad, Managing Disruption Risks In SCs, PomsProduction And Operations Management, Vol. 14, No. 1, Spring 2005, Pp. 53–68
• Peck H., Martin C (2004), Building the Resilient Supply Chain, The International Journal ofLogistics Management /Volume 15 No.2 2004 pg 1-11
• Robb, S. P., A. Bailey. 2003. Risky Business: Corruption, Fraud, Terrorism & Other Threatsto Global Business, Revised edition. Kogan Page Ltd., London, United Kingdom
• Slack N, Chamber S, Harland C, Harrison A, Johnston R 1998 “Operations Management”2nd Edition Pitman Publishing
• Wright C. (2005), Sarbanes-Oxley silver lining: compliance leads to risk management,Boston-Herald,1 October, Available:http://business.bostonherald.com/womensBusiness/view.bg?articleid=104472
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Appendix
A) Asset Management hampered by manual processes, inaccurate data
Survey by WhereNet: Real-time locating system (RTLS) Vendor of 146 operations managers,engineers and IT executives
• 10% of respondents indicate their companies write off a half million dollars in annuallosses as a result of lost assets or inventory
• 59% of respondents reported their companies spend up to $25,000 a year, in man-hoursalone, searching for lost assets
• 60% of respondents said that companies spend up to $50,000 annually over provisioninginventory and equipment as part of their “standard” operational for manufacturing process
• 49% of respondents consider the lack of connectivity between their inventory / assets andthe people and information systems that manage those assets as the most significantbarrier to streamlining their SC
Source: Frontline Companies Report Widespread, costly asset tracking problemsFrontline solutions; Oct 2001; 2, 11, ABI/INFORM Global Pg.10
B) According to a report prepared for the grocery industry by consultants A.T. Kearney, bad dataleads to a host of problems:
• Companies lose approximately $40 billion, or, -3.5 percent of sales, each year because ofSC information inefficiencies.
• Nearly 30 percent of item data in catalogues used by retailers and manufacturers isincorrect. Correcting those errors costs between $60 and $80 each.
• Companies spend an average of 25 minutes per SKU per year manually cleansing out-out-sync item information.
• Nearly 60 percent of" all invoices generated have errors each invoice error costs $40 to$400 to reconcile.
• Forty-three percent of all invoices result in some form of deduction
• New product rollouts take an average of four weeks—in large part because of theinefficient and error- prone approaches for exchanging and updating the new item'sinformation in the buyer and seller systems.
Source: Gopal. G, McMillan. E Synchronisation: A cure for Bad Data Innovations: New ways ofSC Management Review – May/June 2005
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C). Cool Tags help Trucking Company
Radio Frequency Identification (RFID) benefits the SC by allowing items to be identified andtracked throughout the entire SC in real time. RFID consists of devices which transmits andreceive data (in the form of radio waves) and is usually attached to containers containing thegoods. The technology enables the capture and analysis of information without employeesrequired to manually type the data.
In addition to identifying and tracking goods, RFID also allows provides information on the stateor condition of the goods within the SC. Scott’s Transport, one of Australia's leading refrigeratedtransport companies, delivers perishable goods to customers such as Kraft, Primo Smallgoodsand National Foods. By the end of 2005, 30 RFID-based temperature monitoring systems,developed by Australian company Exago will be installed onto their fleet of about 400 vehicles.RFID technology will allow for the temperature inside vans to be monitored and alert allstakeholders from the driver to the customer when suitable temperature levels are breached
Source: Australian, The, OCT 04, 2005
D) Example of supplier disruption risk: Hurricane Katrina
An extreme example of supplier disruption and its effects on the entire SC can be seen by therecent Hurricane Katrina. Shut down of manufacturing operations (e.g. oil refineries) in affectedareas have resulted in supply disruption throughout the USA and the world. Furthermore,upstream and downstream activities, that is, deliveries from and into affected areas havecompletely stopped due to the damage of infrastructure. As a result, costly and timelyreconstructions have to be made to restore the usual production capacity
Source: Logistics Advertising Report, International Logistics: Katrina’s Challenge, The AustraliaSep 26, 2005, and p6
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E) The Sarbanes-Oxley Act was enacted in 2002 in the US as part of the efforts to help restoreinvestor confidence in the integrity of financial reporting. Section 404 of the Act enforcescompanies to understand and quantify risk within the SC and introduce controls to mitigate it,however, the problems arises with operations personnel which are often unable to appreciate thedirect financial linkages of their day-to day activities. Another barrier is that implementation is anexpensive and time-consuming process43.
Internal controls as required bythe Act are not limited to the setof controls that governaccounting processes. Rather,they are full set of controls thatrelate to all components of theSC. The table on the right showsthe linkages between SCactivities and the accountingareas upon which it impacts44.
Figure 1 indicates the number ofcontrol points needed throughoutthe organisation which helpmitigate risk. However, a lack ofcontrol points will result ininaccurate costing data which inturn will hide non-value addingprocesses, decrease the firm’sability to benchmark againstcompetitors and increaseuncertainty in applying a cost-based pricing strategy.
43 Wright C. (2005), Sarbanes-Oxley silver lining: compliance leads to risk management, Boston-Herald, 1 October,Available: http://business.bostonherald.com/womensBusiness/view.bg?articleid=104472
44 O’Keeffe, P. (2004) “Understanding SC Risk Areas, Solutions, and Plans, A Five Part Series”, Protiviti IntegratedRisk Consulting
Areas in theSC
Area affected-balance sheet
Area affected -income statement
Raw materialspurchased
Raw materialsAccounts payableCash and debt Cost of Sales
Purchase ofequipment
Plant and equipmentAccounts payableCash and debt
DepreciationTaxes
Direct and indirectmaterials andservices
Plant and equipmentAccounts payableCash and debt
Cost of SalesWagesUtilities
Conversion of rawmaterials i.e.manufacturing
Raw materialsWork in processAccounts payableAccrued expensesWages payableCash
Cost of SalesWagesUtilities
Storage of rawmaterials, work inprocess or finishedgoods
RM, WIP, FGAccounts PayableAccrued expensesWages payableCash
Cost of SalesWagesUtilities
Sale to customer orsubsidiary
WIP InventoryFG Inventory
RevenueCost of salesTaxesIntercompany
Figure 1: adapted from reference #17
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F) One of the most common and less well-controlled weaknesses occurs generally after thecontract has been awarded. Even where manufacturer’s are able to establish a strong discipline insourcing, supplier selection, and contract negotiation in the purchasing and procurement phasesof the SC and are thus able to gain solid contracts with preferred suppliers, there is a tendency togive inadequate attention to evaluate the ongoing performance, service and value delivery, andcontract compliance. Without monitoring, measuring, and controlling supplies, the manufactureris unable to identify quality and quantity shortcomings which may lead to supply interruptionfurther down the SC 15.
G) For example, suppose a customer order is electronically transmitted to the sales departmentthrough an Electronic Data Interface (EDI), the order is for 20 units which EDI sends as 2separate digits i.e. 2 and 0. This information is then passed on to the manufacturing department inan XML format via the company’s ERP system however the “unit order” field which is charactersensitive consists of 3 digits. Consequently this blank field may automatically be assigned a valueof ‘zero’ which would then be display as 200.
H) McDonald's and Disney - two of the world's most valuable and popular brands - were recentlyaccused of using suppliers in mainland China that breached labour regulations. Not only do suchsituations cause concern regarding potential and actual damage to the environment, workers orcommunities, they also pose a serious threat to corporate brand reputations and to companies'bottom lines.
Source: Gilchrist, I. (2001) Asia Week: “Beyond Compliance; Social accountability can protectcompanies and profits” Financial Times Information Limited Apr 13, 2001 pg1
I) Albright (2005) reports that the European Union (EU) has implemented two directives onelectronics manufactures, the first directive, Waste Electric and Electronic Equipment (WEEE) isa recycling directive which will require manufactures to provide a means for consumers to returnelectronics waste free. The second directive, Reduction of Hazardous Substances (RoHS)requires manufactures to limit the amount of hazardous materials (lead, mercury, cadmium andsome flame retardants) in everything from electronic phones to desktop computers
In the case of WEEE, manufactures are required to finance the return of upto75% of all productsAlbright (2005). .