The Various Roles of Dominant Players in Supply Chains - Coursework Example

Analyse the various roles of dominant players in supply chains Introduction The paper focuses on various types of domination in supply chain, especially highlighting on supplier centric, retail centric and manufacturer centric domination. Before the 1970s, supply chain management was not defined clearly and manufacturers were the dominant players who influenced the suppliers into pushing for selling their products to the end-users through retail stores. This was essentially the case with big manufacturing companies in the US and the Europe. However, post globalisation, the scenario has changed completely with retail chains such as Wal-Mart and Tesco dictating terms to the suppliers and manufacturers. They innovated the supply chain and created demand as per the customers’ preferences. There is another form of dominance in the supply chain, known as the supplier centric domination, wherein the supplier dictates the terms. OPEC is an excellent form of such dominance. The paper would however, first understand the concept of supply chain management and thereafter, focus on supply chain domination. Finally, it would provide a detailed overview on the types of domination witnessed in the supply chain. Understanding supply chain management Supply chain management consists of both tactical and strategic aims and objectives (Cox 1999). The coordination between traditional and strategic functions in a supply chain to improve the performance of the company is known as supply chain management (Mentzer et al. 2001). In order to achieve a successful supply chain, it is required to have effective coordination between strategic and systemic levels. Such coordination helps in decreasing cost in the system and aligning supply as per the end-user’s demand (Westgren 1998). The activities of all the participants within a supply chain are interdependent on each other. Therefore, the efficacy or cost of an activity can impact other activities as well. The activities also include that of the buyers, channels and suppliers within the supply chain. Through increased coordination, a participant within a supply chain may be able to adapt the activities of other participants, which would help in increasing the productivity level. Further, this would also increase interdependency as well. Therefore, just like the development of integrated activities within a company, various participants of the supply chain can also create similar integrated functions (Håkansson & Johanson 1993). However, such integration might not be achieved very easily, as conflict within the supply chain is inevitable. A major cause for such a conflict is due to the dominance of a participant in the supply chain (Emiliani 2003). This further result in bargaining issues between various participants. For instance between the manufacturer and retailer or retailer and supplier. Generally in a supply chain there are two types of relationships that work. In the first kind, participants believe in working together for reducing cost and creating value through close cooperation with each other. However, in the second kind of relationship, the value creation is divided among various participants of the supply chain. This creates an adverse situation as every participant wants to gain the highest value for itself (Hamel et al. 2002). Supply chain domination A supply chain consists of various participants, with each of them assigned specific roles in the entire process of developing finished products from raw materials, for meeting customer needs. The kind of relationship that these participants share with each other is the major factor that decides the accomplishment of the supply chain. Therefore, supply chain management theories propose that the participants should work in collaboration. However, in practice, such theories are not applicable due to scarcity of resources and lack of trust among each other. This environment of mistrust is prevalent even more in developing economies and certain types of industries (Gules et al. 1997). Therefore, the kind of relationship that exists in the supply chain is usually related to negotiation other than integrated working relationship or full collaboration. Further, the success of collaboration is also dependent on the kind of power certain participants exert on others in the supply chain. It has been found that such domination is common in the automobile industry (Maloni and Benton 2000). This means that the price of an automobile is directly dependent on prices offered by the steel industry. Thus, there is a clear dominance of the steel supplier over the automobile manufacturer. Power has given rise to another variable in relationships between various participants within the supply chain. Therefore, it is important to find out the impact of such kinds of relationships on the performance of the supply chain. It has been commonly seen that in a supply chain, a single player usually plays a dominant role and controls the entire function. This dominant player enforces its standards and rules on the other participants of the supply chain. In other to find out the level of control and domination of each participant, one can apply the theories of Supply Chain Control and Visibility. Such an assessment would help to enhance the efficacy of the supply chain (Bowles and Gintis 1999). The supply chain control and visibility consists of three stages: Process domination: The organisation has defined the operational processes in a clear manner. Further, these processes are also explained and implemented properly. For instance, the process of Key Performance Indicators (KPIs) has been put into perspective. The KPIs are being measured at regular interval and the results are reported as well. This helps in taking corrective actions whenever required. Organisation domination: The company may not be able to organise every process. However, it may be able to conduct various company reviews internally at regular intervals. This helps in finding out the extent to which the company has been able to develop and fulfill its aims and objectives. Supply chain domination: In the third stage, the company is able to review the performance of the supply chain partners. Such a review is conducted based on the KPIs that have been decided beforehand. These KPIs are used to measure the success of the supply chain on the whole. Although, these three stages of supply chain are inter-dependent and each should be achieved to attain success, this paper would only focus on the various kinds of supply chain domination. The third stage of supply chain domination focuses on the importance of customers and suppliers for an organisation. However, in most cases it has been found that an organisation itself remains the most dominant participant in the entire supply chain. Therefore, the efficiency of the organisation is also reflected upon its supply chain partners as well. In case the organisation has a professional attitude, its customers and suppliers would also mirror similar outlook. Further, in most cases it has been found that the dominance is directed towards the participant down in the supply chain order. Thus, it is also important to impose certain quality standards on the suppliers to check such dominance. Organisations should provide the suppliers with standards and processes that it requires the supplier to follow. Further, the organisation should also ask suppliers to provide it with regular KPI updates as well as carry out audits at regular intervals (Caniëls and Gelderman 2007). There are also various types of domination in the supply chain. However, this paper would particularly focus on the retail centric, supplier centric and manufacturer centric domination. Retail centric It has been witnessed that the supply chain was managed and controlled by the manufacturing industry till the recent times. In such a scenario, retailers were only given the power to market and sell products that the manufacturer provided them (Reid 1995). However, the situation changed drastically, especially in the US and the Europe, during the 1960s. It was during this time that the economic and social changes began to take place in the post Second World War Europe and the US. This led to the growth of mass consumption and the need to product good quality products. In order to fulfill such demands, manufactures had to abide by demands of retailers. This helped in the growth of the retail sector that no longer had to abide by rationing constraints or pricing fixed by manufacturers. They were much closer to their customers and understood the demands of the end-users. Thereafter, they catered to the customer demand and influenced the manufacturer to produce goods as per the customer needs (Wilkinson 2002). Various experts have differing viewpoints about retail centric dominance. For instance, retailer dominance is being categorised into two means of dominance, i.e. co-operative and non-cooperative dominance in a study by Hua and Li (2006). They stated that the retailers exert dominance on the manufacturers. Further, through their research they proved that manufactures are sensitive towards the quantity of orders given by the retailers. However, Xie and Ai have different viewpoint on this issue and believes that manufacturer has a much more dominant role than suppliers. This is due to the fact that the manufacturer has the ability to control the profit margin. Thus, the influence of the retailers displaced the dominance of the manufacturer. This was especially evident in industrialised countries such as the US. Many researchers have conducted various studies to establish reasons behind this change and the impact of such a change. Most researchers however focused on two main reasons for the change in the domination equation. First was due to the monopoly of retailers, which resulted in manufacturers forced to sell their goods to only a handful retailers who had huge purchasing power. Driven by growing consumer demand, these retailers increasingly gained dominance over manufacturers. The second reason for this dominance is the growth of supermarkets and in-store brands or private labels. These brands were comparatively cheaper than that of the branded products and started giving tough competitions to the established brands as well (Marsden, Flynn and Harrison 2000; Harvey, Quilley and Beynon 2002; Wilkinson 2002). In comparison to the mid 20th century period, wherein the European and the US multinational companies played a major role to create manufacturing dominance in the supply chain, the present era belongs to the retailers. The advent of globalisation has lead to increasing dominance of retailers, which is largely led by Wal-Mart. Many consider Wal-Mart not just the largest retailer in the world, but also reckon it as a cultural icon and an economic strength. The retail store was found by Sam Walton with a simple philosophy, which focused on providing customers goods at the lowest available price. This philosophy ultimately drove the growth for the company. The corporation has been able to provide goods at low prices due to the use of latest technology, a prudent corporate culture and a drive to influence suppliers to sell the products at prices lower than the ones offered by other stores in the market (Chandran 2003). In order to lower its prices, Wal-Mart procured the products from the manufacturers directly, without involving any suppliers. The company is also a tough negotiator and only finalise a deal if it offers maximum value at the lowest-possible rate. It also spends a considerable amount of time meeting up with vendors to understand the pricing structure offered by them. This helps the company in making sure that manufacturers are undertaking adequate steps to cut prices. Wal-Mart is such a strict negotiator that it did not even give consideration to big names such as Proter & Gamble (P&G). Wal-Mart mostly sources its goods from regional or local vendors (Chandran 2003). It also has a well-stocked inventory in its distribution centre and warehouses, which supplies around 85 per cent of the goods to the stores. The company usually replenishes its stock within two days as compared to five days taken by its competitors. Further, use of advanced technological system such as barcode and hand-held devices help in managing the distribution centres in a better manner. All these have led to a better managed supply chain and have made Wal-Mart a dominant player in the entire supply chain. It has been able to influence the manufacturers and suppliers to produce quality products at cheaper prices, with quick turnaround time. In a way, Wal-Mart has revolutionised the entire supply chain by pushing the manufacturers to their limits and by creating product demand among the consumers (Chandran 2003). Similar to Wal-Mart, Tesco has also created quite an impact in the retail industry. It has been able to improve the processes in almost every stage of the supply chain. Tesco decided to modernise its supply chain in 1983. It introduced POS scanning system, automatic ordering system and automatic system to control warehouse and centralised distribution system during 1983-1996. This resulted in lowering the lead time to supply goods to the stores. It also developed a system which helped it to keep on giving orders to the suppliers rather than giving it only once in a day. This helped in getting the goods well in time and not necessarily in bulk, which requires more time to process (Foster 2003). Tesco also encouraged the manufacturers to switch from batch manufacturing to lean manufacturing. It started education programmes for its manufacturers to project the higher benefits of using lean manufacturing. It also introduced several innovative services to garner greater number of customers and gather information about their preferences and buying patterns. It introduced the Clubcard scheme to create the profiles for its customers as well as market various initiatives to them. Such a data helped Tesco in understanding the customers in a better manner and create products as per the needs of its targeted audience. Later, the company could also influence preferences of its customers as well (Foster 2003). Thus, Tesco became another leading retailer to revoluationise the retail industry and create a dominant role for itself by influencing the manufacturers and customers alike. Supplier centric Various literatures on the supply chain management provide evidence that collaborative relationships between various participants within the supply chain can lead to the success for the organisation. However, it can also not be denied that certain participants within the supply chain are dominant than the others (Scott and Westbrook 1991). It is also not surprising to find that traditionally, it was believed that due to the term supply chain, suppliers are the most dominant component in the entire system. The proponents of such a principle believed that the role and growth of the supply chain would depend on the relationship between suppliers with other participants. If participants maintain a closer relation with the supplier, the organisation would reap maximum benefits out of it. Experts such as Pilling and Zhang (1992) believed that maintaining a long-term relationship with suppliers would help in producing more benefits as compared to traditional arrangements. Such a relationship would also help in augmenting the competitive positioning of supplier as well as manufacturers. This would finally create a win-win situation for both the parties. Research indicates that during the 1970s the definition for supply chain management started to develop. Although, even today experts have not been able to provide a common definition for supply chain management, most of them before the 1970s believed that suppliers were the dominant participant in the supply chain. In fact, experts believed that the theory about supplier being the dominant participant could be found even in the 1990s. However, such a belief has slowly and steadily been rejected and it has been acknowledged that in most cases, suppliers are just intermediaries and do not have a very dominant role in the entire process. Traditionally, it was believed that suppliers were the one who shared the information regarding the demand for a product. They collected the customer data from the market, analysed them and predicted the buying trends as per the available data. They also speculated about the demand for certain goods and pushed for such products to the retail stores. However, such a model still exists in today’s contemporary world as well. The most popular one is the Organization of Oil Producing Countries (OPEC), which has resulted in providing recognition to supplier centric domination. The OPEC is an organisation consisting of some of the biggest oil producing nations, who have come together for influencing the trading price of crude oil. As crude oil prices are the major determinant of global economy, it is important to keep a check on crude prices. OPEC therefore, helps in keeping the prices stable as well as generating a steady source of income for the oil producing nations (Cleveland and Kaufmann 2003). Thus, in this case, the suppliers have the dominant role who controls the price and the market. The manufacturer, i.e. the oil producers, and the retailers, i.e. the retail companies such as Exxon, have to abide by the prices and regulations set by OPEC, who in this case are the suppliers. Manufacturer centric The major motivation of all the participants in the supply chain is to earn higher profits and manufacturers are also not out of that league. Therefore, the manufacturers also try to create certain mechanism that would lead to better coordination with the retailer, better terms for revenue sharing, quality discount etc (Cachon and Lariviere 2001). Generally, manufactures do not depend on a single retailer and sell their products to different retailers. Also, their terms and conditions with each retailer are different as per the requirement. In a manufacture dominant supply chain, the manufacturer has the power to decide about the wholesale price after studying prices given by competitors and retailers. Further, in a monopolistic environment, the manufacturer could charge prices above the prevailing market price, and thereby create a supplier-controlled supply chain (Ertek and Griffin 2002). In such a scenario, the manufacturers create certain products and influence suppliers to push for the product in the market through retailers. Such a condition was rampant before the 1960s in the Europe and the US. During that time, the world was still unaware of globalisation and US-produced and European goods were a rage world-over. The manufacturers in these countries created products and decided on the prices. The end-users had no choice but to buy those products at the given price. The manufacturer became the most dominant participant in the entire supply chain. Conclusion Various types of domination in supply chain has been studied in detail in this paper, especially focusing on supplier centric, retail centric and manufacturer centric domination. The paper defined the concept of supply chain management and elaborated on the emergence of the term in the 1970s. It was found that before the 1970s, the manufacturers were considered the dominant player who often influenced suppliers to sell their products to the end-users. The scenario, however, changed dramatically during the post-globalisation era with retail chains such as Wal-Mart and Tesco gaining a dominant role in the supply chain. The power was shifted from the manufacturers to the retailers. Furthermore, another form of dominance was also witnessed, which is known as the supplier-centric domination. 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