Managing Sustainability in Fusion 21s Supply Chain - Case Study Example

Managing Sustainability in Fusion 21’s Supply Chain Name: Course: Tutor’s Name: 10th, March, 2010. 1. a). Porter’s Five Forces The Forces Impact (+/-) Potential (H/M/L) Supplier Power The industry has very strong supplier power There are very many construction companies (over 10,000) (Construction Center, 2010). + H Buyer Power The industry has very many people still in need of houses due to construction of few houses in relation to the number of people in need (Shelter, 2010). + M Competitive Rivalry There is no competition (Social Housing is provided by the government and housing associations and does not aim at making profits. It aims at providing affordable housing to those in need + L Threat of New Entrants There is no threat of new entrants (Social housing provided by the government) + L Threat of Substitution No threat of substitution (There are no substitutes for houses) + L There are two analytical models that can be used to analyse an industry or a business. These are; the Porter’s five forces and the PESTEL analysis. Porter’s five forces analysis establishes how strong an industry or a business is considering the situation that the industry or the business is, for example the competitive position of an industry or a business. In this case, the industry to be analysed is the social housing industry and the situation is that of sustainable development. The question is; is the industry in a strong position to achieve sustainable development or in what position is this industry considering sustainable development? According to the Housing Corporation, sustainable development is that development that seeks to provide a balance between the environmental resource protection, social progress, stability and economic growth (2003). For a housing industry to ensure sustainable development, it has to ensure it provides high quality and well managed houses, provide good condition houses that does not affect the health, employment, self esteem and education of the people that live in it, make use of layout and designs, location and planning that supports sustainable development, make use of policies that support sustainable development for example reducing social exclusion and must select development sites that encourage environmental conservation (Housing Corporation, 2003). The Supplier power: If the industry has very few suppliers to choose from, then the suppliers will be more powerful than the company. The social housing industry in UK depends on building contractors for construction of buildings. There are very many building construction companies in the UK. According to a construction’s centre website, there are more than 10,000 housing construction companies (Construction Centre, 2010). The companies provide building system, external walls, fire protection, bathrooms, ceilings, drainage, doors, stairs and so many other construction services. With a variety of companies to choose from, the social industry has more power that the suppliers. Additionally, these companies show some characteristics of sustainable development. The companies are categorised into, building system, external walls, lighting, roofs, renewable energy, fire protection, bathrooms, ceilings, drainage, doors, stairs constructors and several others which is a clear indication of specialization and efficiency. Buyer Power; The buyer controls the prices if they are few, if they prefer other products or services apart from the company’s and if they do not have the cash to purchase a company’s products and so on. The buyer determines the position of the company. If there are many buyers willing to buy a company’s products, then the company’s profits will be high and its position will be enhanced (Porter, 2008). The social housing industry in UK has so many buyers. In providing sustainable development, the needs of the people in need of the houses have to be determined. Currently, the number of houses provided by the social housing system is not enough for the number of people in need of houses for example in England (Shelter, 2010). Competitive rivalry: The government and the non-profit organizations are the only organizations that provide affordable housing to those in need. It would have competition from the private rented sector in terms of achieving sustainable development, but in this case, there is no competition in providing housing facilities to the people in need. The private rented sector companies compete among themselves for people in need of houses and can afford but not for provision of social houses (Porter, 2008 social housing pdf). Threat of new entry: The industry does not have any threats of new entrants. The housing industry s composed of the government and the non-government organization that provide houses to the people in need. It is only the private owners of houses that look for profit. The government and the non-profit organizations aim is to provide affordable housing to people (housing green paper; Porter, 2008). Threat of substitution: This industry has no threat of substitution from other providers. There is nothing that can replace houses (Porter, 2008). Considering Porter’s five forces, analysis seeks to establish if the current position can lead to sustainable development as described above. The company has to have supplier power that will enable it achieve sustainable development, has to have that buying power necessary (that which supports sustainable development), determine if there are rivals that can prevent it from achieving sustainable development, has to establish new entries and substitute products or services that can hinder sustainable development in the social housing sector (Porter, 2008). PESTEL Analysis Factors Impact (+/-) Potential (H/M/L) Political New government policy to improve the quality of social houses-“the government launched a £19 billion follow-up to the decent homes programme to improve the sustainability of UK housing stock” (Hardman, 2010). + H New government policy to implement sustainability policy in its sectors-( Carter & Fortune, 2007) + H Economic The economy s recovering from recession (BBC News, February 2010). + H Unemployment reduced (BBC News, February 2010). + H Still a low GDP (reduced by 4.8% as at 2009) (BBC News, February 2010). - M Production and service sectors improved by 0.1% each (BBC News, February 2010). + M Increased borrowing (approx £178bn) and reduced output (-6%) due to 18 months of recession (BBC News, February 2010). - L Interest rate as at 2008 was 1% and is expected to remain under 1% in 2010 (Economy Watch, 2010). - M Social Factors There is a very big gap between the poor and the rich (Shelter, 2010& Stephens, Burns & MacKay, 2002 ) - H There are more people in need of social houses + Consumer attitudes—people like to be consulted when building houses (Stephens, Burns & MacKay, 2002) -&+ Technology There is increased rate of changing technology + M Environmental The environment has to be conserved according to UK policies and Acts. Protection of the environment depends on the project to be implemented and the environment (for example, an environment with water: water pollution has to be prevented, air pollution, deforestation and so on) (Defra, 2010). + M Legal Social housing industry is regulated by the Housing Act 1996. It regulates and gives funds to the housing associations such as RSLs, local housing authorities and housing trusts (Clough & Barbato, 2002). + M From the above analysis, it is evident that there are very high chances of the housing industry achieving sustainability. The economy is coming out of recession, the political environment supports sustainability in the social housing industry, and there are many people in need of the houses. 2. The environment has so many opportunities for development of a sustainable social housing industry. The government support and change of policy to include sustainability in building of the houses, the politically stable environment although this changes with time, the improving economy, the availability of many suppliers and the lack of competition from other organizations or threats from substitutes and new entrants all provide a very supportive environment to achieving sustainability. The goal of supplier management is to manage the suppliers and the services they offer to ensure there is quality provided to the business and the value of money is obtained (Blokdijk & Menken, 2008). According to Blokdijk & Menken, (2008) the objectives of supplier management are to: Obtain values for money from suppliers and contracts. Ensure that the business needs as described in the contracts with the suppliers are met Manage the relationship with suppliers Manage the performance of the suppliers Identify suppliers, negotiate contracts and manage them throughout the lifecycle. The process of supplier management should include the management of all the contracts and the suppliers in order to meet the provisions of the business (Blokdijk & Menken, 2008). Consortiums are two or more organizations forming a partnership to purchase capital goods, services or materials. The main aim of consortiums is to gain control of their purchasing power of increase their purchasing power and improve the relationship between the companies and the suppliers for better business. By gaining control of their purchasing power, the organizations aim to maximize cost reduction (Securian, 2009). a). Benefits Economies of scale: When consortiums are able to get their goods and services at low cost or are able to reduce cost, it means that the operation cost is also reduced. This enables cost savings which is essential for the economy. Sustainable development also considers economic growth and stability. Economies of process: There is sharing of information about purchases and administration which streamlines the administrative and purchasing processes required in supplier management (Securian, 2009). Economies of information: There is a lot of information sharing and the companies that form the consortium gain strong knowledge due to dealing with several different suppliers. This includes knowledge on new technology, on reduction of wasteful consumption and on improving goods and services (Securian, 2009). With consortiums, there are economies of information, of process and of scale. This contributes to the stability of the economy. Stability of the economy is one of the aims of sustainable development. Sustainable development ensures the future economy does not compromise the needs of the future which means that the economy should be stable (Housing Corporation, 2003). b). Limitations Internal resistance: Internal resistance occurs since different companies have different needs. The majority of the member companies needs may be preferred over the minority companies and the minority companies may resist. This resistance makes decision making not easy and affects the progress of the consortium in its activities (Securian, 2009). Slow decision making reduces the pace of development which may not go with the social progress of a community (Housing Corporation, 2003). Vendor resistance: Companies that join consortiums have sometimes been left by vendors. Vendors try to avoid the tedious process of dealing with the consortium as well as the individual companies. This reduces the purchasing power of the companies or reduces their buyer power making them vulnerable to the market (Securian, 2009). According to the porter’s five forces, buyer power determines the position of a company in a situation. If a company targeted developing the social housing industry and the buyer power is low, achieving the materials necessary for building would not be easy, or the cost of building the houses would be high. This reduces the number of houses built, the rate of building the houses, the number of people to be allocated the houses and the overall development. One of the ways of ensuring sustainable development is by provision of enough houses to the people in need in the UK (satisfying the needs of the people without compromising the future needs). Reduced buyer power would affect all aspects of sustainability from environmental resource conservation to economic stability. c). Fusion 21’s Model This is a model of supplier management where the partners decided not to combine their buying powers. The organizations of fusion 21 established that by combining their buying powers, the organizations will not be able to obtain the best possible rates for the labour and materials they needed for the homes they controlled. The organizations formed partnership to make use of each buying power of an organization benefits the whole partnership (EC Harris, 2010). The supply chain tradition is not applied in the fusion 21 model, instead, it utilizes complicated sourcing, strategic cost management techniques and procurement to manage the cost of materials needed as well as the installations (EC Harris,2010). The housing associations are able to buy the materials and install them. The advantage of supply chain consortiums of increased buyer power is also an advantage to the fusion 21’s model. The model does not depend on the prices set by the suppliers, it depends on the strategies, procurements and acquisitions that help the organizations reduce cost. When organizations in the supply chain have higher buying power, they affect the prices of the goods and services offered by the suppliers. The overall market price will have to reduce since the organizations have more buyer power. As noted above, vendors tend to move away from organizations that join consortiums; this means that more would prefer other organizations in the same industry but not in consortiums such as those using the fusion 21’s business model. This increases the supplier power of the organizations hence improving their positions in the market in any situation. Supply chain consortiums however act as competitors to the fusion 21’s model since both types of organizations can operate at low costs although using different strategies/models and fight for the same buyers (those in need of homes). Supply chain consortiums have a lot of economization than fusion 21’s model and this considering that all lead to minimized operation costs, can make it more sustainable leading to the replacement of fusion 21’s model. 3. Stake Holder management: Stakeholder management involves managing the interests of the stakeholders of a company (Huber, Scharioth, & Pallas, 2004). Stakeholder analysis Level of Interest Power LOW HIGH LOW A Minimal effort B Keep informed HIGH C Keep satisfied D Key players Power: “If I were to pursue this strategy with disregard to the views of this stakeholder could they stop me?” Interest: “How high is it in their priorities - are they likely to actively support or oppose it? The strategy to be pursued by the management of fusion 21 in this analysis is that which incorporates sustainability into the housing industry. Stakeholder power and interest gives the manager a strategy to manage the stakeholders in order to avoid conflict or resolve conflicts within the organization. Fusion 21’s stakeholders are; the contractors, the partners, the employees, the owners of the companies, the share holders, the managers, the suppliers, the government and the community (Fusion 21, 2006). The contractors; (Key player-D): Contractors form part of the project of construction houses, doing repairs and so on. They therefore form part of the business and are very important to fusion 21 partners. They also have high interest since they are a different group of companies interested in profits. The activities of fusion 21 affect their contracts. These stakeholders have high interest and high power. Without the contractors, fusion 21 has to look for construction companies to do their housing construction which is not easy. The partners (Key players): they form the partnership and therefore are key players in the partnership business. If a manager is to pursue a strategy with disregard to fusion 21’s view, it would not be easy to implement such a strategy. The partner has high power in the business. Interest: If a manager is to implement a strategy that incorporates sustainable development, would the partners support? Sustainable development is the provision of people’s needs without compromising the capacity of a community, industry, company or resource to provide people’s needs in the future. Employees (minimal effort): The employees cannot stop the manager from incorporation sustainable d development strategies into the organization’s strategies. They therefore have low power. There interest is also low since they cannot actively support or oppose the strategies. They are the labour force/human resource necessary for organizational performance and only receive instructions from their leaders (Huber, Scharioth, & Pallas, 2004). The owners (keep satisfied): The owners of the organizations cannot stop implementation of new strategies but can support or oppose the strategies. Shareholders: High interest but low power. The shareholders’ interests are always on how the company’s assets are being invested to improve performance. Shareholders of different companies however, may not agree with some strategies. They have high interest but low power. Managers (Key players): The managers have high power because they have the knowledge of how the strategy will impact their departments or areas of business. Their views are therefore very important. They can also choose to support or oppose the strategy so that they implement it in their departments or not. They have high power and high interest. Suppliers (Keep them satisfied): Suppliers can actively support or oppose the incorporation of sustainable development idea into the organization’s strategies depending on the effect of such strategies on their operations with fusion 21. If it results to negative effects that impact their business performance, then they will strongly oppose, while if it has positive effects, they will strongly support. They are therefore of high interest. They however do not have the power to stop the manager from implementing any strategies although can influence this indirectly for example by withdrawing when they fear the impacts might harm their business. Government (keep informed): Has low interest but can actively support an organization’s projects depending on the effect of the project on the community and the contribution to its interests. The government of UK aims at providing affordable homes to those in need and therefore can actively support the sustainable development by funding fusion 21’s projects. It can also strongly oppose if the project’s impacts violate the rules or affect the community in unacceptable way by the law. According to Mabbutt (2010), the government of UK has developed strategies that will ensure sustainability in the social housing industry. The Community (Keep informed): The community has no power to stop any implementation of any strategy of the organization but has the power to bring down what has been implemented. Without the community’s support, any implemented project can go down. It is the needs of the community that has to be satisfied and therefore they form part of support or opposition of the organization’s projects affecting them. Sustainable development however may receive support from the community since sustainable development aims at satisfying the needs of the community considering the social trend, the environmental resource and the economy (Housing Corporation, 2003). Conflicts Conflicts can arise in several areas. There may be conflicts between the partners and the managers, among the partners (for example about who is in control or whose needs are met more that the others and so on), between the shareholders and the managers, between the contractors and the managers or the suppliers and the management. There are so many areas that conflict can arise. Conflicts between the partners and the managers can affect sustainable development if the two parties do not agree on some important issues that contribute to sustainable development. The same applies to conflicts between the contactors and the managers or the separate companies, the conflict between suppliers and the companies/partners, the community and the organization (for example, a new device may be developed to conserve energy but may not be accepted by the people because of the expenses they incur using it). Conflicts are barriers to development. 4. Change Management Theories Delivering sustainability means managing change. In the current world, there are many changes in technology, the social life and even people’s needs. Organizations involved in business have to learn how to adjust to change. Management of change has to consider the fact that people react differently to change, everybody has different needs that need to be satisfied, there are fears and these have to be dealt with and that managers have to be realistic when managing people’s or the organization’s expectations (change management 2). Change management requires the management of the resources of the organization, the culture and the skills to ensure the performance of the organization is improved or maintained. It requires the determination of the barriers to change and dealing with them. The barriers to change include; unpreparedness of the organization to change, poor leadership and management and poor communication. Poor communication and poor leadership results into conflicts in the organization which affects the development of the organization or the implementation of change (Paton & McCalman, 2008). According to Paton & McCalman (2008) change management entails management of the organization considering the resources, the stakeholders, the aim of the organization and the position of the organization in the market. Any change in the organization affects all sectors of the organization therefore requires the attention of all managers of all sectors of the organization. Stakeholder management is part of managing the organization and any change affects its management. If an organization plans to implement any changes, management of the stakeholders in relation to the change that have to be made in the organization has to work towards supporting the change. In the case of sustainability for example, the stakeholders have to be involved and communicated to. As noted earlier, one of the barriers to change is poor communication. Management of the stakeholders involves identifying their characteristics and interests then dealing with each according to their needs. Stakeholder analysis above shows the types of stakeholders that fusion 21 has and their characteristics. The analysis has classified the stakeholders into those that need to be informed always, those that are key players and those that need minimal effort to manage. Based on this analysis, it is important to communicate to the stakeholders considering their interests and powers so that there is very little conflict. Recommendations a). Conflict Management Conflict management requires the organization’s management team to identify areas where conflicts can occur and try to avoid conflicts as well as develop ways of dealing with the conflicts when they occur. Any organization aims to be effective and efficient and this requires elimination of conflicts that can cause division. One way of preventing conflicts in an organization is to build team work and cooperation. This is done by sharing of information among the team members, creating awareness about the aim of the organization and making the team understand the their roles, expressing positive expressions from each team, resolving conflicts whenever they arise and empowering the team (Conflict Management, 2010). In the case of stake holders, conflict resolution would involve identifying the different types of stakeholders the company has and their characteristics, and dealing with them considering their roles and interests in the organization. If the stake holders can for fusion 21’s team, and the manager plans on how to deal with each team, then there will be very little resistance to proposed changes in the organization. As noted above, there are high chances of fusion 21’s managers experiencing resistance of a lot of conflict from and between the stakeholders. Whenever conflict arises, the managers should have a strategy in place on how to resolve the conflicts. This can be done through collective bargaining, conciliation or other different methods of resolving conflicts (Conflict Management, 2010) b). Ensure there is Good Leadership A good leader in change management should have good communication skills that will enable him or her get support for the idea of change, leadership development skills to be able to influence people to believe in him or her and sales and marketing abilities that will enable selling of the idea of change to the people. Promoting the idea of change convinces people of the positive effects or the advantages of the change and how the organization and the partners can cope with it so tat more people accept it with little resistance. It helps stakeholders understand the aim, the expected results of change and its importance to the organization. Communication is necessary to make information be passes to the relevant groups using the right kind of approach (Paton & McCalman, 2008). c). Prepare the organization The ability of an organization to have change competency requires a shift from the current culture and skills from all levels of the organization. The leader of change management should be able to provide a framework that everyone (the employees, executives and managers) will follow to ensure the change takes place. A leader should therefore; Create awareness and the aspiration for change capability Develop knowledge and the ability to manage change Ensure that change management is applied in any new project Evaluate the effectiveness of the organization while implementing the change, that is, assessing the executives, managers and employees’ competency in managing the change and Support and compensate change competency to encourage executives, managers and employees to work hard and to see knowledge as a desired behaviour accepted in the organization (Paton & McCalman, 2008). d). Ensure there is Effective Communication. Stakeholders in most cases have to be informed of the organization’s progress, plans and operations. The idea of changing the operations or strategies of an organization is one of the plans that stakeholders should be made aware of. Change is multifaceted and the strategies used for communicating it determine its success. In order to achieve effective communication, the credibility of the information, relationship building and dialog must be considered. The leader of change management should first analyse the audience of the message in order to develop a message that will suit each type of stakeholder. Each stakeholder should understand the message’s content and proposition in relation to a stakeholder’s interests (Paton & McCalman, 2008). The leader of change management should also ensure that the message comes from a trusted and reliable source to avoid misunderstanding and conflict leading to failure (Paton & McCalman, 2008). 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