Retail Supply Chain Management
Extensive research papers on supply chain management have been published in various journals. Supply chain management has gained centre stage in most research studies and is considered one of the most powerful business improvement tool. Companies around the globe are pursuing supply chain as the best methodology of increasing customer satisfaction, building on revenue, reducing cost and for better utilization of assets.
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Clearly, this management tool has assumed a significant role in international business.
The importance of logistics was first described in 1962. Drucker (1962) asserted that for every dollar that the average American spends on goods, 50 cents accounts for the activities incurred in the process of extraction. He further pointed out that the distribution process occurs when physical properties of matter are converted into economic value.
Over the past years, a number of studies have made an in depth study of the organization as a system. To fully comprehend supply chain management, it is imperative to study the organization as an open system. Recently, there has been a hot debate regarding the conceptual meaning of supply chain management. Ganeshan & Harrison (1995), defined SCM as a network of facilities and distribution options with core functionality of procurement, and transformation of materials into finished products.
Lee & Corey (1995), asserted that SCM consists of integration activities taking place in a network of facilities that procure and transform raw material into intermediate and final product. While according to Christopher (1998), supply chain comprise of a network of organizations involved in the various activities and processes that produce value in form of product and service. Mentzer et al (2001), on the other hand, postulates it as a strategic and systematic coordination of business functions within a supply chain with the aim of improving long term performance of the company.
From a general point of view, Supply chain management embraces various aspects such as logistics, operation management, transportation, marketing, materials and distribution management as well as purchasing and information technology. It involves the transformation of the company’s supply chain into an optimal efficient process whereby the whole supply chain is considered more important than each individual department. A literature review on supply chain management reveals a considerable spurt in research in theory and practice
John (2006) in his paper “supply chain management: theory, practice and future challenges”, analyzed the current developments in supply chain management practices. Through such analysis, he identified barriers, possibilities and key trends on the current developments in theory and practice of SCM. From the research study it emerged that supply chain management was still developing in both theory and practice.
Khann, Bernard & Burnes (2008) developed a research agenda for SCM. Their study identified a number of key debates in the general literature risk that needed to be recognized when applying risk theory and risk management approaches in SCM. Additionally, it emerged that the risk theory was still at its early stages in supply chain management and that proposed models of supply chain risk needed to be tested empirically.
In their paper of “ Global supply chain design: A literature review and critique” Mary, Vidyaranya & Gargeya (2005) examined the decision support models which could be employed in the design of the supply chain. They went ahead to determine the relation between the research literature and practical issues in the design of global supply chain. Reviews were conducted for various dimensions such as performance metrics, decisions addressed in the model, globalization consideration and degree to which the model was line with integrated decision process.
The review was based on issues emerging in the global supply chain management. The findings indicated that while most models were able to resolve the global problems, few of the models were successful in addressing the design problem in supply chain. It concluded that a more practically oriented and forward looking global supply chain modeling would be ideal.
Several articles and journals have been published on theory and practice of supply chain management, however, this management area is still under considerable development and debate. In spite of the increasing awareness on the importance of SCM practices by academicians and practitioners’, failures in implementing these practices still exist. The reasons behind the unsuccessful implementation of these practices lie precisely on the complexities of SCM and organizational performance.
One of the most crucial factors that must be taken into account in supply chain management is the alignment of the supply chain initiatives with business strategy of an organization or company. Porter (1996) differentiates between the business strategy and operational effectiveness. He notes a number of business trends focused on improving their operational effectiveness. Porter (1996) points out that company must understand and make trade off when choosing the best strategy and activities to perform.
Hammer (2004), on the other hand devise different methodologies to be employed by a firm for it to perform its activities optimally. He identifies operational innovation as a central component to many great business successes including Wal-Mart. This is evident by Wal-Mart’s steady stream of operational innovation that has been used to support its business strategy of offering consumers lower prices. Hammer concluded that when implementing supply chain practices, operational effectiveness need to be taken into consideration.
Studying supply chain practices in the context of international retail business, involves identification of networks consisting of suppliers, wholesalers, retailers, and other intermediaries. Initially, power in supply chain rested with the manufacturers and focused mainly on operations, distribution, inventory and transportation functions at the firm level. Both the retailers and the suppliers tended to align themselves with the manufacturers priorities. Research was also conducted from the manufacturing centric perspective.
Following the growth of discounting in the recent years, there has been a fundamental shift in the market place power from manufacturing to retail. The production process once dominated by the manufacturers such as General Motors, Proctor and Gamble among others, have been taken over by organizations closer to the consumers. Multinational retailers such as Walmart, Target and Best Buy have taken over the leadership role in the supply chain. However, a great deal of studies conducted has been on manufacturing centric with a major focus on the supplier manufacturer relationship. Existing streams of research have been slow to respond to this new retailer driven reality. Clearly, the power shift downstream has left a huge gap in the supply chain research.
SCM is critical to the success of retail businesses. It determines the end consumer cost and has significant impact on the value of the shareholder. A study by Morisson & Assendelft (2006), showed retailers stock prices fall by 9 % upon the disclosure of supply chain problem. Yet little has been done on the retail segment concerning SCM issues, capabilities and outcomes. This is shocking since most executives in the industry describe themselves as retail supply chain managers. More so, there are multiple conferences that are entirely focused on retail supply chain management such as “Retail industry Leaders Association Leaders in Logistic Conferences”. Inspite of these, research on retail supply chain management is still scanty. The lack of focus on retail supply chain management reveals a substantial gap in the industry.
Despite the growing concern on supply chain management in the retail industry, most empirical research studies conducted in the past have been narrowly focused, lacking a holistic conceptualization and application. Further, a dozen of published articles on SCM generally address narrowly defined issues such as inventory error rates, in stock position and direct product profitability. Only a few of the studies have managed to explore on the broader, strategic supply chain issues from a retail perspective.
Lowson (2001) examined the operational strategies employed by retailers in Europe and US. His findings were that retail supply chain managers used a broad array of strategies such as time based competition, quick response, and postponement among others. Recently, Van Assendelft & Morrison (2006) recap the results of an IBM study of 795 retailers globally. The study was focused on inventory. The findings of this research study showed that the best performing multinational retailers, especially Wal-Mart, Tesco and Amazon.com, demonstrated a revenue growth of more than twice that of other retailers with an operating margin of one third higher.
Studies by Charmaz (2006) have enormously contributed to retail supply chain management. Charmaz study was based on an interview with various retail executives. Constant comparative technique of grounded theory was used by Charmaz to analyze interview transcripts and identify major issues in retail SCM. He concluded that retail supply chain management requires agility driven by a broad realization that change is the new norm in the global economy.
Some published articles delve on the supplier to retailer link for a single product while others describe the supply chain for a particular region or retail outlet. For example, Francis, Hines & Bailey (2006) examined the distribution of pineapple in Australia. While Marchant, Fernie & Pfab (2000) explored on the grocery logistics of Spain. Khan, Bernard & Burnes (2008) used a retailer as a case study in exploring supply chain risk.
Despite the critical role played by supply chain management in the retail industry, research on supply chain management has been given scant coverage in retail academic journals. Only a few articles have been published in the Journal of Retailing. Moreover, these articles are point focused and primarily deal with traditional inter firm relationship issues such as conflict management (Weitz, Bradford & Stringfellow, 2004), power (Perry & Bloom, 2001), coordination (Parry & Ingene, 2000), dependence (Lagace & Gassenheimer, 1994), and partnering (Zacharia, Mentzer & Min, 2000).
This is however not surprising. Research on retail supply chain management has been more an extension of the manufacturing theory along with distribution and consumer product theory, rather than a holistic construction of a critical research domain. Most existing literature simply fail to provide the broader understanding on the strategic importance of Supply chain management to retailers and how shift in power impacts on retail supply chain management. Clearly, research on SCM has been slow to respond to this new reality. Certainly, new insights into retail supply chain management must be developed to address the gap existing in literature.
Based on the above discussions, this paper seeks to address three interrelated questions
How does the retail centric paradigm shape the problems of supply chain
How does the shift in power influence supply chain alignment
And what are the challenges currently facing retail supply chain managers
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