Tag Archive | Relationship

Personal Predictions for Supply Chain Management in 2015

Dear readers. I hope you enjoyed reading this blog in 2014. Based on dozens of discussions I had throughout the year, I would like to share my predictions for topics that could become important in supply chain management in 2015 with you. First, I believe that ethical issues will soon play a much more important role than ever, as, so far, social standards or animal rights have too often been neglected in our textbooks. Second, a supply chain consists of relationships between people, who work in teams and groups across independent companies. So, there might soon be a supplementation of the traditional view of the supply chain as a network of black boxes called “suppliers”, “buyers”, “consumers”. Finally, better technologies and algorithms, and, thus, lower transaction costs, might soon make the old SCM dream come true to integrate the end-to-end supply chain. We might soon see totally new business models (enterprise mobility linked to SCM could be a good example). I wish you a good start into 2015.

Vanilla Sourcing in Madagascar

In a previous post, I demonstrated how Symrise creates added value beyond corporate boundaries by closely collaborating with vanilla farmers in Madagascar. Watch the following video, which highlights this approach from the perspective of Unilever, a buyer of Symrise’s aromatic compounds. The case is also included in an article I have written for Supply Chain Management Review about the interface between SCM and CSR.

CDP Supply Chain Report 2014

The Carbon Disclosure Project (CDP) “is an international, not-for-profit organization providing the only global system for companies and cities to measure, disclose, manage and share vital environmental information”. Written by Accenture, the CDP Supply Chain Report 2014 has now been published. Its subtitle, Collaborative Action on Climate Risk, indicates the direction of the report’s journey. Indeed, the report, which is based on data collected from 2,868 companies responding to a supplier information request in 2013, builds on “a wealth of data on how suppliers and their customers are collaborating to drive down carbon emissions, mitigating water risk, seizing opportunities, and building revenue and brand along the way”. It turns out that “[s]uppliers report that both climate risk and opportunity are at high levels” and that “consumers are becoming more receptive to low-carbon products and services”. Moreover, suppliers “realized savings of US$11.5 billion from emissions reduction investments […], down from US$13.7 billion in 2012”.

Examining Transactions within a Supply Chain Context

In a previous post, I presented a discussion about the relationship between transaction cost economics (TCE) and supply chain management (SCM), which was started by Williamson (2008) and continued by Zipkin (2012). This discussion called attention to several theoretical gaps at the TCE/SCM interface. In their 2012 article, Supply Chain-Wide Consequences of Transaction Risks and Their Contractual Solutions, Wever et al. argue that “a shift [is needed] within the TCE literature from a focus on bilateral transactions, to examining transactions within a supply chain context”. They present five models which “(1) provide justification for moving the TCE framework beyond the dyad; and (2) explain the implications of the shift toward an extended TCE framework for the (optimal) use of supply chain contracts”. It turns out that supply chain members need to take into account both transactions on the supply side and transactions on the demand side, as only this can reduce exposure to transaction risks.

Wever, M., Wognum, P.M., Trienekens, J.H., & Omta, S.W.F. (2012). Supply Chain-Wide Consequences of Transaction Risks and Their Contractual Solutions: Towards an Extended Transaction Cost Economics Framework. Journal of Supply Chain Management, 48 (1), 73-91 DOI: 10.1111/j.1745-493X.2011.03253.x

Reputational Dependencies in the Supply Chain

A Munich court is currently hearing a case that involves several members of a supply chain: (1) Alfred Ritter, a manufacturer of chocolate (“Ritter Sport”), (2) Symrise, Ritter’s supplier of piperonal, an aromatic compound, (3) Stiftung Warentest, an influential consumer organization, whose verdicts frequently lead to an increase or decrease in sales in Germany, and (4) the end consumers. Stiftung Warentest conducted tests on Ritter’s hazelnut chocolate. They argue that piperonal, a vanilla flavoring, cannot be gained in a natural way and is, thus, falsely labelled by Ritter as a “natural flavor”. According to Symrise, “[t]he piperonal contained in this flavor is not ‘chemically’ manufactured, contrary to the statements made by Stiftung Warentest”. The court’s decision will be announced on January 13th. The case has confused consumers and influenced their shopping behaviors in the important winter season. It demonstrates that reputation is a strategic asset and reputational dependencies exist in the supply chain.

Update (2014-01-13): Alfred Ritter won the dispute against Stiftung Warentest.

Resource Dependence Theory and Supply Chain Management

In their seminal publication, The External Control of Organizations, Pfeffer and Salancik (1978) have postulated resource dependence theory. Basically, it argues “that organizations are constrained and affected by their environments and that they act to attempt to manage resource dependencies” by setting up different forms of interorganizational arrangements. However, the original theory has sometimes been criticized for empirical and conceptual shortcomings, e.g., for combining the dimensions of power imbalance and mutual dependence in the single construct of interdependence, making theory testing challenging. In their article, Synthesizing and Extending Resource Dependence Theory: A Meta-Analysis, recently published in the Journal of Management, Drees and Heugens (2013) “consolidate 157 tests of [resource dependence theory] and corroborate its main predictions”. They show that the theory is, indeed, “a premier perspective for understanding organizational–environmental relations”. Given that a supply chain is a hybrid of one’s own organization and its environment, this result might encourage new research in our field.

Drees, J.M., & Heugens, P.P.M.A.R. (2013). Synthesizing and Extending Resource Dependence Theory: A Meta-Analysis. Journal of Management, 39 (6), 1666-1698 DOI: 10.1177/0149206312471391

Toward a Theory of Supply Chain Management

We have to admit that there is still no such thing as a “theory of supply chain management”. A new article by Mena et al. (2013), titled Toward a Theory of Multi-Tier Supply Chain Management, might bring us one step closer to such a theory by taking into account that supply chains have become more complex, more fragmented and longer. This piece of research, which is based on an inductive case study research design, hands theory-testing researchers interesting propositions on a silver platter: First, depending on the supply chain position, the members of the supply chain draw power from different sources. Second, the buyer needs to connect directly with the supplier’s supplier (“closed supply chain”) to influence product characteristics. Third, with a growing degree of such a direct connection, power is increasingly replaced by trust. Finally, closed supply chains are more stable, but require more management resources.

Mena, C., Humphries, A., & Choi, T.Y. (2013). Toward a Theory of Multi-Tier Supply Chain Management. Journal of Supply Chain Management, 49 (2), 58-77 DOI: 10.1111/jscm.12003

Full Product Transparency (Guest Post by Ramon Arratia, Interface)

In his new book, Full Product Transparency, sustainability pioneer Ramon Arratia argues that we have to move from corporate to product sustainability. I am happy that Ramon followed my invitation to contribute to my blog:

The conventional approach to exercising corporate responsibility in a company’s supply chain is to draft a company supplier standard and then audit for compliance using that document. Positive and usually well-intentioned, the impact is inherently limited by the narrow scope of the dialogue and the teacher–student nature of the relationship. The typical 700 questions questionnaire sent to suppliers usually asks meaningless things such as: “Does your organisation have an environmental policy in place?” Or: “Does your organisation have an environmental management system (EMS) in place?” This is just bureaucracy for the sake of it, taking lots of time from both parts and adding little transformative value to the real environmental impacts of the products. The ideal question for suppliers is: “Send me the environmental product declaration (EPD) of your product and your plan to radically improve it”. After all, you are not buying the whole company. Besides, around 80% of the environmental impacts of products are not in the manufacturer’s realms but in their supply chain.

Ramon Arratia is a sustainability director at Interface and has previously been employed in similar roles at Vodafone and Ericsson. Interface is the winner of the International Green Awards 2012. Ramon is also a blogger of Cut the Fluff.

Creating Added Value beyond Corporate Boundaries

Some months ago, Symrise, a global supplier of fragrances, flavors, active ingredients, and aroma chemicals, has won the German Sustainability Award 2012 in the “Germany’s Most Sustainable Initiatives” category for its approach to procure vanilla in Madagascar: Symrise closely collaborates with more than 1,000 vanilla farmers and “the entire procurement process takes place locally, from cultivation and harvesting, to the fermentation of the beans, all the way through to extraction”. The company partners with NGOs, development organizations, and farmers’ associations to ensure “that its projects in the areas of environmental protection, income diversification, nutrition, health and education continue to blossom over the long term”. Symrise benefits from these activities by receiving reliable access to top-quality raw materials. This initiative demonstrates how social responsibility, environmental protection, and business success can go hand in hand. It is also an example of good supply chain management, as added value is created beyond corporate boundaries.

Logistics Clusters (Guest Post by Yossi Sheffi, MIT)

Logistics clusters play an increasingly important part in logistics & supply chain management. I am happy to share the following guest post by Professor Yossi Sheffi, a distinguished expert in logistics clusters. Thank you for contributing to my blog.

Logistics clusters are agglomerations of firms that come together to share logistics expertise and know-how. As I argue in my new book Logistics Clusters: Delivering Value and Driving Growth (MIT Press, October 2012), these entities have a number of unique, and generally underestimated, attributes. First, they are self-reinforcing in that logistics clusters use the high volumes of freight they generate to capture economies of scope and scale and reduce costs while improving service quality. These benefits attract more companies, which in turn bring further efficiencies within reach. Second, resident companies use the cluster to pool expertise and equipment, which buffers them against fluctuations in demand. Third, logistics clusters are major creators of employment opportunities that tend not to be “offshorable” and not tied to the fortunes of any one industry. Finally, these entities are building considerable expertise in environmental sustainability. These are some of the reasons why I believe that the private and public sectors need to invest more in logistics clusters.

Yossi Sheffi is a professor at the Massachusetts Institute of Technology, where he serves as Director of the MIT Center for Transportation & Logistics.