Graduate Diploma in Purchasing and Supply. Strategic Supply Chain Management L6-02 LEVEL 6. Senior Assessor s Report

Transcription

1 Graduate Diploma in Purchasing and Supply Strategic Supply Chain Management L6-02 LEVEL 6 Senior Assessor s Report November 2007

2 INFORMATION FOR CANDIDATES The senior assessor s report is written in order to provide candidates with feedback relating to the examination. It is designed as a tool for candidates both those who have sat the examination and those who wish to use as part of their revision for future examinations. Candidates are advised to refer to the Examination Techniques Guide (see the following link as well as this senior assessor s report. The senior assessor s report aims to provide the following information: An indication of how to approach the examination question An indication of the points the answer should include and how marks are allocated An indication of candidate performance for the examination question APPENDIX A syllabus matrix for the examination is included as an appendix. It highlights the learning objectives of the syllabus unit content that each question is testing. The unit content guides are available to download at the following link: ADDITIONAL SOURCES OF INFORMATION The Supply Management magazine is a useful source of information and candidates are advised to include it in their reading during their study. Please see the following link to the Supply Management website L6-02/SA report/nov

3 SECTION A Q1 Analyse DC's existing corporate strategy, and evaluate the strategic options available to the company. (25 marks) The aim of this compulsory question is to test candidates' ability to analyse a case study situation, their understanding of corporate strategies, and their application of appropriate strategic options. The question relates to the case study organisation (DC) and falls into two parts: (i) the analysis of the corporate strategy, and (ii) the identification and evaluation of appropriate strategic options. Time and effort should therefore be allocated equally between the two aspects. Candidates should demonstrate an understanding of the current situation and indicate how various strategic options would improve matters. The question relates to corporate strategy rather than supply chain or procurement strategy, and the answer should reflect this distinction. DC has grown rapidly through organic growth based on a cost leadership strategy. The problem with this approach is that it is difficult to maintain competitive advantage without a means of differentiation other than low cost. Competitors have learned how to make computers cheaply or have exited the manufacturing sector altogether. DC s relentless focus on costs has created quality problems and alienated customers. The company has failed to see the business market moving away from buying commodity computers to a total systems solution approach, including consultancy, systems design, installation, maintenance, and after-sales service. Although the company has ridden the wave of disintermediation, it is not prepared for the re-intermediation phase of the business cycle where intermediaries are once again helping customers navigate their way through the complexities of technology purchases. Furthermore, the company has a celebrity CEO culture and appears to be incapable of progressing without the hands-on involvement of the founder. DC does not have the internal resources to pursue a different strategy. A number of strategic options are open to DC. Commoditisation may not be as successful with services as it was with hardware, and there is still the problem of sustainability. DC needs some form of differentiation. Buying ASD enables the company to quickly acquire expertise in services in a lucrative market, and will enable DC to pursue profits rather revenue, but it may be a niche market with limited growth potential. A joint venture with Indian services firms may be worth investigating. This would enable DC to buy into the broader services sector, gain access to an emerging sales market, and source cost-effective production facilities. The Indian firms will gain access to a Western brand and markets, thus ensuring a good fit. The move into consumer markets should be treated with care as it represents diversification. The consumer electronics market is highly competitive with strong brands and powerful incumbents who would act aggressively towards new entrants. L6-02/SA report/nov

4 Most answers made an attempt to analyse the current situation, but were often limited to operational and supply chain issues, rather than corporate strategies. Other answers consisted of descriptions of the various tools of analysis and a description of the rational planning process, rather than an analysis of DC's strategies and issues. In terms of the strategic options, some answers merely stated those that were mentioned in the text, and others described Porter's generic options and/or Ansoff's Matrix without evaluating their applicability to DC's current situation. Internal resource implications were not wellcovered. Good answers demonstrated an in-depth understanding of DC s current strategy, external influences and internal capabilities, and included a robust evaluation of the strategic options in terms of their suitability, feasibility and acceptability to the case study organisation. Q2 Explain how lean supply and late customisation principles have helped DC to achieve its corporate objectives. (25 marks) This is the second compulsory question related to the case study organisation. It aims to test candidates' ability to analyse a case study situation, their understanding of lean supply and late customisation principles, and their ability to apply supply chain concepts to a case study situation. The question is worth 25 marks; therefore the coverage of the concepts should be significant. Furthermore, candidates need to identify DC's corporate objectives (which should have been discussed in Q1) and demonstrate how lean supply and late customisation helps the organisation to achieve them. The two concepts of value stream and waste are at the heart of lean thinking. Activities that add value (from the customer's perspective) are emphasised and those that create waste and efficiency are eradicated. The seven common types of waste are: overproduction, waiting, re-work, excess processing, excess movement, excess transportation, and excess stock. Techniques for waste reduction are: level scheduling, reduction of demand amplification, demand-pull systems, and root cause elimination. Close collaboration and integration with supply chain partners is emphasised. DC operates in a commoditised, process-based industry with high volumes and regular demand. This makes it an ideal candidate for lean supply. Late customisation is achieved by inserting a decoupling point in the supply chain where the customer order penetrates. Upstream of this point the company adopts lean principles, while downstream processes are designed with agility in mind. This enables operational efficiency to be achieved along with customer responsiveness. Sophisticated forecasting and demand management competences are required. DC makes modular products that can be held in a generic form and configured to customer requirements late in the assembly process. This makes it an ideal candidate for late customisation. In reality DC also adopts marketing interventions to smooth out demand fluctuations. Customers L6-02/SA report/nov

5 are steered towards discounted special offers which are assembled from parts already in the production system. Most answers demonstrated a reasonable level of understanding regarding lean supply, although the concept of adding value as well as reducing waste was not always mentioned. Furthermore, some answers repeated what had already been written in reply to Q1, which demonstrates the need for planning question responses in advance. Late customisation was not as well understood. A number of candidates talked about a need for agile responses and hybrid systems to cope with dynamic and fluctuating demand, but did not seem to be aware that this is the role of the late customisation principle. Lack of depth was a general concern, and a failure to apply the concepts to the specific case study situation was also evident. Good answers demonstrated a robust understanding of the lean supply principles and the late customisation concept, discussing them extensively in relation to the case study situation. SECTION B Q3 Strategic change is a constant feature of the modern business environment. Distinguish the circumstances in which transformational and incremental change are appropriate, explaining how the approach to change management would differ for each type. (25 marks) The aim of this question is to test candidates' understanding of change management processes and their knowledge of incremental and transformational change. Rather than just discuss change management in a generic way, it seeks to contextualise the subject by introducing two very different types of change that organisations may face. The approach adopted is likely to be different for incremental and transformational change. Most organisations change incrementally as strategies evolve gradually. This enables the organisation to be adaptive to changes in the external environment, facilitates the management of the learning process and is compatible with the concept of continuous improvement. The culture of the organisation is not likely to be affected and the management only needs to ensure that an environment conducive to continuous improvement is in place. However, incremental change may not keep pace with the external environment, leading to strategic drift. This is where transformational change is required. It is good for times of crisis, but may need to be driven through quickly, which leads to uncertainty and resistance. Effective change management principles must be adopted, such as communication, participation and negotiation. Top management commitment will also be required in order to overcome resistance and in some cases L6-02/SA report/nov

6 coercion may be necessary. Appropriate structures, systems, processes, and resources will need to be put in place. The culture of the organisation will be greatly affected. Most candidates made a reasonable attempt at this question. The concepts of transformational and incremental change were generally well understood, as were the principles of change management. However, candidates did not always differentiate sufficiently between the change management approaches adopted for each type of change. Some candidates treated incremental change as if it was the same as transformational except that it takes place over a longer time period. This approach does not recognise its organic and emergent nature, its emphasis on continuous improvement, and the natural involvement of employees in the process, thus requiring less of a directive change management approach. In terms of transformational change, there was not always enough emphasis on the "hard" aspects of change management, such as structures, systems, processes, and resources. Good answers demonstrated a robust understanding of the change management process, both structural and behavioural, the principles of incremental and transformational change, and the linkages between them. Q4 (a) Outline the role and scope of Ansoff's matrix. (10 marks) Q4 (b) Use the Ansoff matrix to conduct an analysis of the strategic (15 marks) options open to an organisation with which you are familiar. This question aims to test candidates' understanding of Ansoff s Matrix and the sourcing strategies contained within the strategic planning tool, as well as their ability to apply the model to an organisational situation. Part (a) asks for an outline of the role and scope, therefore more than a description is required. Part (b) emphasises that candidates must be familiar with the strategic issues facing their chosen organisation. (a) The Ansoff Matrix classifies growth strategies by looking at the various combinations of existing or new products and markets. This gives four categories of strategy. Market penetration involves the use of products from the existing portfolio being offered for sale to a market that the organisation already serves. Product development strategies concern the identification and provision of new products to existing markets. Market development strategies involve identifying and servicing new markets with existing products. Diversification strategies simultaneously involve the development of new products for sale to new markets. Each type of strategy varies in terms of the level of risk involved, and requires an emphasis on different resources. The model has been criticised for its simplicity and failure to assess whether the options are suitable and feasible, but is often used as a means of establishing possible strategic objectives that would then need to be evaluated using other tools. L6-02/SA report/nov

7 (b) The answer will obviously depend on the organisation that is chosen, but responses should demonstrate a robust application of the matrix to an organisational situation and suggest appropriate strategies based on the analysis undertaken. Most Part (a) responses described the strategic options contained within the model, but not all of them evaluated the usefulness or implications of the matrix. In terms of Part (b), it was clear that a number of candidates were not sufficiently familiar with the strategic issues facing their chosen organisation. These answers were either incomplete or operational in nature. Good answers demonstrated an in-depth understanding of the matrix, its component parts, and their implications in Part (a), and applied the model extensively and at a strategic level to their chosen organisation in Part (b). Q5 (a) Demonstrate how supply chain strategies can be integrated with and can support corporate strategies. (15 marks) The aim of this question is to test candidates' understanding of the link between corporate and supply chain strategies. Candidates need to demonstrate how supply chain strategies can be integrated with corporate strategies and also how they support corporate strategies. Supply chain strategies can be seen as a functional strategy of the organisation, which are used to ensure that the functional areas play their part in helping the SBUs achieve corporate and business goals. Supply chain strategies are integrated with corporate strategy through a hierarchy of vision, mission, and goals. Objectives and plans will then be formed at the functional level in order to deliver appropriate supply chain strategies in line with corporate directions. Supply chain strategies support corporate strategies by: establishing the boundary of the firm through make/buy decisions; ensuring effective outsourcing arrangements; driving cost and functionality improvements; cross-functional working with other functional areas; and managing supplier relationships. The second part of the question (how supply chain strategies support corporate strategies) was generally answered better than the first part (how supply chain strategies are integrated with corporate strategies). Some candidates chose to ignore the first part altogether. This is a fairly open question, but there should have been a logical, coherent discussion of the relevant issues. L6-02/SA report/nov

8 Good answers demonstrated a robust understanding of the link between corporate and supply chain strategies, and clearly demonstrated how specific supply chain strategies support particular corporate objectives. Q5 (b) Compare and contrast the nature of supply chain objectives and strategies in the public and private sectors. (10 marks) The aim of this question is to test candidates' ability to differentiate between public- and private-sector organisations in terms of their supply chain objectives and strategies. The command words are "compare and contrast"; therefore a discussion of the differences is clearly necessary. Objectives in the private sector are usually clear-cut, being driven by profit maximisation and shareholder value. Secondary objectives are concerned with either cost reduction or differentiation choices. Supply chain strategies will vary depending on the demands of the business and the industry within which it operates. Identifying and satisfying customers is usually straightforward, and either arms-length or collaborative relationships can be adopted with suppliers. Supply chain competences have been developed over many years and sophisticated tools and techniques are deployed to achieve functionality and cost improvements. Management usually has free reign to adopt appropriate supply chain strategies and sourcing options. Objectives in the public sector are less clear. A diverse range of stakeholders exist and it is not always obvious which group takes precedence. The customer does not often directly purchase the services. Supply chain strategies are driven by EU procurement directives and require prescriptive and formulated sourcing approaches. Collaborative relationships with suppliers are more difficult to justify. There is considerable political intervention, an emphasis on budgetary control, and a risk-averse culture. Supply chain strategies must achieve value for money, but it is not always clear what this entails. Procurement competences are not always well-developed. Decision-making is often slow and bureaucratic, and public sector organisations often have a remit to pursue environmental and social objectives. The differences between the two sectors have been diminishing in recent years. Procurement competences have increased in the public sector, EU directives have become more flexible, and corporate social responsibility is being pursued in all types of organisation. Some candidates approached this question by saying that there is no difference and proceeded to give a generic supply chain management answer. This rather missed the point of the question. Whilst the differences are converging, and candidates were given credit for explaining how and why this is happening, the main focus of the question was on the differences. Some candidates took the opportunity to heavily criticise the sector they operate within (usually the public-sector), but a balanced and objective answer is L6-02/SA report/nov

9 always best. Many of the answers were anecdotal and did not demonstrate much research or awareness of the issues. Good answers demonstrated an in-depth understanding of public- and private-sector objectives and circumstances, and discussed in an objective way the supply chain strategies that each type of organisation adopts. Q6 It has been suggested that global sourcing is a major contributor to the achievement of competitive advantage. Assess the validity of this statement. (25 marks) The aim of this question is to test candidates' understanding of global sourcing principles and their ability to evaluate the value of global sourcing. Since the candidate is being asked to assess the validity of the statement, it is clear that they need to look at both sides of the argument and to recognise that whether organisations should source globally is not a straightforward decision. There are a number of reasons why an organisation may source globally. Market-based reasons include: increasing the number of available sources, introducing competition to the domestic market, reacting to competitors' sourcing strategies, and establishing a presence in a foreign market. Procurement-based reasons include: cost reduction, quality improvement, increased exposure to technology, and delivery and reliability requirements. Low-cost sourcing from developing countries is of course the latest manifestation of global sourcing. Global sourcing will only achieve sustainable competitive advantage if it gives an organisation some means of differentiation over its rivals. There are a number of factors that may restrict global sourcing from achieving competitive advantage. International barriers to trade include: import/export licenses, quotas tariffs and embargoes, technical standards, restricted channels and providers, and currency exchange controls. International procurement issues include: sourcing difficulties, language problems, cultural differences, currency conversions and fluctuations, different legal systems, unclear responsibilities, customs issues, and payment methods. Logistics issues include: inventory management and transportation delays. Free-trade agreements will mitigate the international barriers, while an incremental and planned approach is needed to overcome the procurement and logistics issues. Corporate social responsibility is a major concern when sourcing globally, and careful attention to ethical considerations would mitigate any potential harm to an organisation's image and reputation. The first problem was that some answers discussed globalisation rather than global sourcing, which significantly affected the marks that could be awarded. The second problem was that some answers pronounced that global sourcing leads to competitive L6-02/SA report/nov

10 advantage without discussing the potential difficulties that could be faced in adopting the strategy. A balanced approach and the judicious use of examples add value to the answers for this type of question. Good answers demonstrated a robust understanding of the contribution of global sourcing to achieving competitive advantage, the potential problems, and the strategies to overcome them, using examples where relevant. L6-02/SA report/nov

11 APPENDIX: Syllabus matrix indicating the learning objectives of the syllabus unit content that each question is testing Question SECTION A SECTION B No Learning Objective a b a b 1 Analyse the concept of strategy and the process of developing corporate strategy 1.1 x x 1.4 x 1.5 x x Manage change processes directed towards achieving corporate strategy x 2.3 x 3 Understand the contribution of strategic supply chain management to corporate strategy 3.1 x 3.2 x Evaluate concepts underlying strategic supply chain 4 management x 4.4 Assess the idea of the global supply market as a source 5 of competitive advantage 5.1 x 5.2 x Distinguish and assess various models of supply chain 6 structures and relationships x L6-02/SA report/nov