Understanding the Implications of the Fragmentation of Australian Grass Roots Suppliers

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1 Understanding the Implications of the Fragmentation of Australian Grass Roots Suppliers Dr Lee E J Styger MBA Director Sydney Business School Bldg 232, IC Campus University of Wollongong NSW 2522 Australia Phone: Fax: lstyger@uow.edu.au Between 2010 and 2012, a program of work was conducted to establish the resilience of grass root supply networks in Australia. Whereas the concept of supply chain integration and end-to-end communication are well established in supply chain theory, the opposite was found to be the case during this program. It was discovered that in many cases, Australian supply networks are fragmented and lack the connectivity that would be expected from contemporary understanding. This places risk into supply networks, which in turn can lead to the erosion of competitiveness, especially in the face of overseas competition. This paper provides a comparison between current supply theory and actual practices within the Australian context, and delivers some of the core findings from the program of work including insight into the implications of the lack of end-to-end supplier visibility and customer focus within supply networks. 1.0 Introduction Progressively, we are seeing the concept of supply chain and supply chain management entering into the vernacular of popular press and media commentators. This has more often than not been resulted from news coverage of large scale humanitarian disasters or news of chronic corporate underperformance and the attempt, by some, to rationalise often seemingly irrational events by blaming supply chain issues. From the outside, supply failure might indeed appear to be non-rational and indeed unlikely in a time of cooperation and open corporate collaboration. However, for the professionals working the supply side many of the news real incidents witnessed around the world on countless television sets, demonstrate vividly what can result if poor supply chain management practices are encouraged or indeed poor sustainability principles are practiced, where the quick dollar today is perceived to be far more critical than the next dollar tomorrow. 2.0 Word Clouding the Literature - Supply is Supply Chain Management The startling impact of the supply / supply chain management paradox becomes most vivid when a Word Clouding (Langdon 2005) exercise is performed on the core literature. Figure 1. illustrates the result of a Word Clouding exercise conducted from the literature 1 of 7

2 surveys that were undertaken by the Sustainable Supply Research Group, in an attempt to answer the fundamental question What is Supply?. The Word Cloud clearly demonstrates that supply chain management is predominant in the literature with very little emphasis being made of other potential aspects of the subject. The cloud is so predominated by the contextual reference of supply chain management that is is easy to understand why the common view of supply amongst professionals and academics alike is: Supply = Supply Chain Management However, this common view sets a contextual axiom and with it a potential inability for both business and academia to move beyond the accepted norm, that in turn suggests the debate and understanding of supply has not moved forward in real terms for quite some time. Figure 1 - A Word Cloud of the Current Literature on What is Supply 3.0 What s in the Exam Fundamental supply chain theory is well established and indeed legitimised as its core elements and constraints are now being overlaid into other, non-commercial, sectors such 2 of 7

3 as government and humanitarian aid management. The fact that these principles hold fast in these sectors is a testament to good first principles and rigorous application over the years. There is however a chink in this movement insofar as over focus on elements such as SCOR, EOQ, Bullwhip, inventory control, leave a vulnerability in the broader strategic concept of whole supply into an operation or the business system. Put simply we typically over focus on the mechanics of supply chain management and not the strategical and conceptual aspects of what makes our business operate. 4.0 Is Supply as a Concept Being Choked It might be argued that with the almost over emphasis on principles and protocols for supply chain management, that everything should be well under control. However, it might also be argued that this emphasis drives division within the practice and the ultimate defence of an element that is fundamentally useless without a greater vision of the total supply network. For example, there are over 600 definitions of supply and division in the theorists ranks regarding what is the correct version. The well discussed concept of endto-end configuration has little actual comment in terms of its meaning and importantly occurrence in real, field case studies. 5.0 Living in the Shadow It is easy to remain in the happy place of conceptual bow tie models of supply chain configuration, where up-stream and down-stream actors play defined and bounded roles in an almost Orwelling and Huxley derived utopian view of the way we operate. This Stepford model of supply typically over simplifies the flow and value generators to a single exchange and often completely ignoring the complexity of the network or nonrationality of many supply models. There is little recognition regarding the shadow side of supply. This might typically be viewed in terms of all of the support, or non-operational elements an organisation needs to function. For example the supply of people is siloed to HR, and supply of money to finance, the supply of opportunity to marketing and perhaps the supply of knowledge to academia. Any or all of these elements are critical as the supply of raw materials and the ongoing sustainability of any business, yet all too often they are simply not considered in the design and management of a supply network. Many operations live under the shadow of failure of their entire operation by simply not incorporating all elements of supply. For example, business might work hard on the supply and delivery of apples, there might be multiple suppliers and multiple derivatives to offset risk and maintain if one type fails. However, all of this multi sourcing amounts to zero if there is only one supplier of apple labels, and it is these labels that denote type, batch and shelf life information, all of which might be mandatory in the sale of the product. This theoretical example might at first sight appear implausible, but is it any more implausible to witness entire auto lines stop for the lack of one type of fastener or a global economy fail for the lack of supply of trust. 6.0 Blocking the Line of Sight Recent research has indicated that the outsourcing or role shifting of the management of lower levels of supply to first and second tier suppliers, has effectively blocked the visibility 3 of 7

4 of many OEM of focal companies. Even with modern communication technology, limited intelligence is forthcoming about the actual health and wellbeing of the network. the lack of visibility, especially of lower levels of supply introduces risk where it is least expected (i.e. the label producer) and yet this risk is potentially lethal in the continuity of the network. The program of research conducted between 2010 and 2012 on Australian grass roots suppliers illustrated some disturbing trends in supply management and disturbing indicators in medium term sustainability of supply networks. The key data points are illustrated in Figures 2 and 3. 95% COULD NOT PROVIDE A BASIC IDEA OF WHERE THEIR CUSTOMERS WERE POSITIONED 75% DID NOT KNOW THE BASIC DYNAMICS OF THEIR INDUSTRY 10% OF CUSTOMERS PAID ON TIME 82% COULD NOT DIFFERENTIATE BETWEEN THRESHOLD CAPABILITY & COMPETITIVE ADVANTAGE 25% HAD A LIMITED STRATEGIC PLAN 83% DID NOT KNOW HOW THEY OR THEIR SUPPLIERS WERE POSITIONED IN THE MARKET 75% HAD NO EXPERIENCE OF GETTING A PRODUCT TO MARKET 80% COULD NOT NAME A SECOND TIER SUPPLIER THE HIGHLIGHTS 90% THOUGHT DELIVERING LATE WAS ACCEPTABLE 97% COULD NOT DEVELOP A REFERENCE MAP OF THEIR SUPPLY CHAIN 15% COULD MAKE A TANGIBLE CONNECTION BETWEEN SUPPLIER & CUSTOMER 80% RECOGNISES A DISCONNECT BEWEEN THEMSELVES & THEIR CUSTOMER 90% COULD NOT NAME AN INTERNAL OR EXTERNAL CUSTOMER Figure 2: A MindMap of the Key Findings of the Research 4 of 7

5 80.7% THOUGHT THEY WERE GOOD AT WHAT THEY DID 9.1% THOUGHT THEIR INNOVATION SKILLS WERE WORLD CLASS 40% DID NOT MANAGE SHAREHOLDER VALUE BY ANY MEANS 8.2% THOUGHT THEY WERE WORLD CLASS AT GETTING NEW PRODUCT TO MARKET 84% THOUGHT THEY WERE POOR COMMUNICATORS TO THEIR SUPPLY CHAIN & CUSTOMERS 6.4% THOUGHT THEIR CUSTOMERS WERE WORLD CLASS INNOVATORS 16% THOUGHT THEIR SUPPLIERS WERE GOOD AT COMMUNICATING AND SELLING TO THEM 11% THOUGHT THEY WERE WORLD CLASS INNOVATORS THE HIGHLIGHTS 90% THOUGHT THE CONCEPT OF LEAN WOULD BE GOOD FOR THEM 23% CONSIDERED THEIR SYSTEMS & TECHNOLOGY TO BE PERFORMING WITHIN ACCEPTABLE INDUSTRY STANDARDS 6% WERE OPERATING WITHIN A FORMAL (AUDITED) QUALITY SYSTEM 85% COULD NOT PREDICT WHAT WOULD HAPPEN IF SUPPLY STOPPED TOMORROW 70% COULD NOT PREDICT WHAT WOULD HAPPEN IF SUPPLY STOPPED TODAY Figure 3: A MindMap of the Key Findings of the Research The research demonstrated the fragmented nature of many businesses, lack of formal management systems and survivalist nature of many of the networks they were working in. There was little evidence of strategy or investment into the future. Remarkably, many of the participants supplied into larger and well respected organisations, where supply protocols are embedded into day-to-day operations. However there was little evidence to suggest that few if any of these protocols had cascaded into the grass root suppliers. The fragmentation and lack of connectivity found in supply networks has highlighted some disturbing possibilities including the potential that many, apparently robust, businesses might actually find that the continuity of their operation is reliant on an unstable, invisible and often a collection of non-integrated key actors. This work flies uncomfortably in the face of supply chain theory, where it is well argued that all suppliers should be integrated throughout the entire chain (or network) and cooperation and communication remain the common code of the operation. 6.0 Conclusions Modern supply chain management theory is well understood and backed up with significant quality evidence. There is little doubt that the introduction and continued application of principles of supply chain management are necessary and indeed critical. However, there appears to be a significant disconnect between the theory and practice of supply chain management, when for example the entire network and / or lower and often invisible suppliers are considered. 5 of 7

6 The evolution of supply responsibility to first and second tier suppliers does not devolve the almost inevitability of supply failure and like it or not the ultimate responsibility and impact of that failure on the OEM or focal company. References Boyer K and Verma R (2010). Operations and Supply Chain Management for the 21st Century, South-Western Cengage Learning. ISBN-13: Buzan, T (2005). MindMap Handbook, Thorsons, Harper Colins. ISBN Carter C and Rogers D (2008). A Framework of Sustainable Supply Chain Management: Moving Toward New Theory, International Journal of Physical Distribution & Logistics Management, Emerald Group Publishing limited, Vol. 38, No 5, pp Craig C.S and Douglas S (2005). International Marketing Research, John Wiley & Sons Ltd. ISBN Fawcett S, Ellram L and Ogden J (2007). Supply Chain Management, From Vision to Implementation, Pearson Prentice Hall. ISBN Fletcher, J (2009). Good Corporate Governance and Sustainability - A Loss of Containment Issues and Asset Management Challenge, Sydney Fellows Forum, SB360, Wiggly Tin Company. ISBN Gibilisco S (2004). Statistics Demystified, McGrawHill. ISBN Gill J and Johnson P (2010). Research Methods for Managers, Sage. ISBN Langdon, J. 2005, Wordplay, Transworld Publishers. ISBN Lysons K and Farrington B (2006). Purchasing and Supply Chain Management, Prentice Hall. ISBN-13: Montgomery D, Runger G (1999). Applied Statistics and Probability for Engineers, John Wiley & Sons Inc. ISBN Monczka R, Handfield R, Giunipero L and Patterson J (2009). Purchasing & Supply Chain Management, South-Western Cengage Learning. ISBN-13: Porters M (1998). Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press Sage L (2000). Winning the Innovation Race, John Wiley and Sons Inc.. ISBN Styger L (2009). Perspectives on Supply Post the Global Financial Crisis, Wiggly Tin Company. ISBN of 7

7 Styger, L. E. J. 2011, An analysis of the Sustainability and the Future of Innovation Readiness within the Australian Supply Base a Cross Sectorial, Cross Regional Snapshot, Enterprise Resource Planning and Supply Chain Management Conference, Penang Malaysia, March, of 7