Paramount Inc - Supply Chain Management and Decision Making - Case Study Example

Managing Under Uncertainties Introduction The principal goal of an organisation is to make profit by attracting and retaining customers. This can only be achieved through strategic planning where a company translates its key competencies and resources into competitive advantages (Burrow, 2008, p.34). The framework of achieving all of the above is through decision making process that involves critical thinking. Managers while making decisions are faced with uncertainties as future trends are not clear and can only be anticipated. Anticipation of future allows firm to adapt to change and shape the future as a strategic advantage (Jones and Hill, 2007, p.100). However, at times futuristic decisions made might not provide that needed solutions (Kristandl and Bontis, 2007, p.943). This paper explores the concept of decision making under uncertainties. The paper uses author’s case example of decision made at work place as supplies manager that did not go correct by identifying issues that arose as outlined in the subsequent paragraph. Moreover, the paper examines in a critical perspective how the author would have tackled the same had he been exposed to various decision theories. The Decision to Outsource Our company (Paramount Inc.) deals with interior décor with specialisation in curtains and blinds. The company main raw material is rolls of bleached cotton and linen. The company does not have capacity to manufacture its own and with the need to focus on core aspect which is design & reduce production cost, the firm agreed to outsource the raw materials. As a supplies manager and secretary to the board, I managed to convince the tendering board to award the contract to Cotton World Company as the main supplier of linen & cotton wool. One reason for their acceptance was that almost all top level managers and line managers had close relationship with Cotton World Company. Moreover, the other bidder (Cushion Inc.) which was our previous supplier was not in good books with the company. The staff in my office claimed they disliked the attitude of some of their employees. In addition, they were not able to accommodate our company’s wishes. Unsatisfactory Outcome Two months down the line, it emerged that Cotton World Company had engaged in management buyout without any venture capitalist. This made financing very difficult. Consequently, this meant that Cotton World Company had to count every cent to be able to produce its main products. The eminent danger was that it was a matter of time before our products no longer belongs within the focus of its business unless our company is prepared to finance the investment. The blame pointed was that I was not able to check their financial position much earlier. In a nutshell, as a supplies manager, I had chosen a small supplier in comparative terms without assessing their suitability to supply a big company. Analysis of the Issues in Context of Supply Chain Management and Decision Making Supply chain management philosophy is pegged on the system view approach rather than set of fragmented parts. This translates to the fact that supply chain management extends the concept of partnership into a multiform effort to manage the total flow of goods from the supplier to the ultimate customer. Thus, each firm in the supply chain directly and indirectly affects the performance of all other supply chain members, as well as ultimate, overall channel performance (Mentzer, 2001, p. 9). One way in which a firm can increase their profitability and market leadership is by reduction of operating cost through cost cutting measures. One key area of cost cutting measures is by concentrating on core functions of the firm. This can only be achieved by efficiently integrating suppliers, manufacturers, warehouses, and stores so that merchandise is produced and distributed at the right quantities to the right location and at the right time (Simchi-Levi, Kaminsky and Simchi-Levi, 2004, p. 2). However, this kind of arrangements normally faces numerous challenges which are dynamic and complex (Simchi-Levi, Kaminsky and Simchi-Levi, 2004, 4, 5 & 6). According to Simchi-Levi, Kaminsky and Simchi-Levi (2004, p. 7), in the 1980, companies discovered new manufacturing technologies and strategies that allowed them to reduce costs and better compete in different market segments. However, in the recent there has been a paradigm shift towards supply chain management so as to increase profit and market share. The motivation is on the notion that companies that have already streamlined their internal business process should optimize their external relationship with their business partners (Hieber, 2002, p. 1). In a simple overview, supply chain relates to a network of facilities and distribution option. These networks perform the functions of procurement of materials, value addition, and distribution of these finished products to clients. A key to improved supply chain management lies in the new trend of integration and coordination rather than competition (Cousins, Lawson and Squire, 2006, p. 757). In addition, much of the theory in supply management is based on idealized schemes of optimal routes and quantities for demand fulfilment when considered from a whole-network or chain perspective (Cousins, Lawson and Squire, 2006, p. 760). This is what as a supplies manager I was not able to put in context in relation to decision making. This was like unstructured decision that was not built on any factual basis. Oliveira (2007, p. 12) indicates in his work that when it comes to individual and group decision making process, various aspects shapes the process. However, choosing from a crowded option is not an easy process. This is what I exactly found myself. In picking the supplier for our company I did not engage all of my cognitive faculties. This is same for the whole board. In making the decision we relied on perception and bias. Kahneman, Lovallo and Sibony (2011, p. 51) observe that bias can distort reasoning in business. They note that confirmation bias that is as a result of our perception, for instance, leads people to ignore evidence that contradicts their preconceived notion. The overreliance on the bias that the other competing firm was not friendly to our company contributed to the status where operations almost stalled. Had I and the group engaged in critical thinking as an ingredient to decision making, the situation would have been avoided! Lipman (2003, p.26) summarises this by saying that “critical/reflective thinking is aware of its own assumptions and implications as well as being conscious of the reason and evidence that supports this or that conclusion”. The kind of decision I engaged can be best summerised by Oliveira (2007, p.14), “individuals tend to value alternatives that offer early reassurances, the ability to avoid or delay making difficult trade­offs is greatly sought, and humans often pursue changing one’s mind”. One thing that did not cross my mind was that while is good to have consideration for those who are friendly to you, business process is about gaining. One theory which would have benefited me here was consequentialism ethics as advocated in utilitarian model (Sunita, 2005, p.110). The driving force then would have been the benefit the company would accrue rather than the relationship top level management had with them. The kind of thinking was not normative, descriptive or rational. It was a non rational process since it was not backed with thorough research and evaluation of alternatives. Reflection on How Decisions Theories Would Have Been Applied Decision making is a process that occurs in all organizations whether profit or non-profit. However, competent decision making is essential for successful organizations, groups, as well as individuals (Johnson, 2009). Decision makers are tasked with the role of making decisions of significant importance in and for the organizations that they head. Most of these decisions are optional in nature and routinely impact on the value and viability of organizations. One theoretical perspective that would have helped me if knew it is the logical thinking while making decisions. Boyd and Fales (1983, p. 101) defines reflective thinking as “the process of creating and clarifying the meaning of experience of past or present in terms of self (self in relation to self and self in relation to the world). Here reflection does not only add to our knowledge but challenges the concepts and theories we hold. Furthermore as a result we don’t see more, we see differently”. This would have empowered me to know the importance of consultation and interrogation of idea before selecting it. If I would have been exposed to rationality theory of what is ought to be achieved between two firms working together, I would have guaranteed a successful process where maximum return is guaranteed. Rationality as an approach to decision making is closely related to economic theories of choice. Hodgkinson and Starbuck (2008, p. 457) posit that in rational approach to decision making, a choice has to be made among a set of alternatives. Such alternatives then generate outcomes which can be evaluated based on individual preferences. Uncertain events, contingencies, as well as states of nature significantly influence the path between alternatives and outcomes leading to various outcomes. Therefore, decision makers rationally select the alternative which will produce the maximum satisfaction of their expected preference (Chandra, Krovi and Rajagopalan, 2009, p. 48). The above approach to decision making is popular due to its use of decision analysis and decision trees. Decision makers such as managers and leaders are required to consider more alternatives and batches of available options at the same time. In addition, it is essential that they integrate various approaches to decision making in order to be able to juggle schedules, budgets, as well as organizational options in a simultaneous manner. As such, various theories, as well as approaches have been proposed and fronted by psychologists and other scholars to enhance decision making by managers and leaders among others tasked with that responsibility. Some of these approaches include; rationality, bounded rationality and intuitive approach to decision making among others (Johnson, 2009). Jones (1999, p. 297) notes that bounded rationality approach to decision making asserts that decision makers are goal-oriented or rather objective and adaptive in their decision making. As such, in bounded rationality decision makers are intentional in their decisions. However, decision makers sometimes fail in crucial decisions due to their human emotional and cognitive make-up. This is influenced by two kinds of limits. First, procedural limits which influence the how decision makers go about decision making. Second, substantive limits which directly influence particular choices made by the decision maker. The decision made by a manager or a leader is of significant importance due to the fact that a manager or a leader plays a crucial role with regard to the production, dissemination, interpretation, storage, as well as use or disuse of organizational information. According to Shanteau (2001, p. 913), a major concern in decision making has been to understand and improve decision making. Swansburg (1996, p. 273) argues that the current business and organizational environment require decision makers to be speedy in their decision making in order to be competitive. This then would have been important in informing me on the need for focusing on objective to be achieved. At the first moment, the process did not have any objective to be achieved. Intuitive approach to decision making is where decision makers become more subconscious, instinctive and subjective in nature. Lunenburg and Ornstein (2012, p. 141) note cognitive psychologists such as Gary Klein reiterate that intuition provides decision makers with the power to make quick and efficient decisions. In Intuitive approach to decision making, managers rely on patterns of learned experiences which are deeply held. These patterns of learned experiences provide tacit knowledge implicitly generated and acquired over time. Thus, I would have relied on past experiences while managing at different capacities. Conclusion Individuals, groups and organization make crucial decisions with far reaching implications on daily basis. The process of making decision has historically been explained by two schools of thought. First, the normative school of thought which describes how decision out to be made in order to realize the desired outcomes. The second is the descriptive school of thought which attempts to provide answers on how decisions are made without regard to behavioural guidelines. As such, with regard to management theory, these two fall into classical and administrative models of making decision respectively. Rational approach to decision making belongs to the classical model. The decision maker follows a structured sequence in order to accomplish or rather achieve the preferred outcome. In bounded rationality approach to decision making, the decision maker are goal-oriented, adaptive, as well as objective in their approach to making decisions. As such, they are intentional in the decision which they make. Intuitive approach to decision making is where the decision maker are instinctive, subconscious and subjective in their decisions. In such cases decision makers rely on patterns of learned experiences which they have deeply held. Such patterns of learned experiences provide tacit knowledge implicitly generated and acquired over time and highly effective. There are various quantitative tools which enable decision makers arrive at rational decision. Some of these tools include: decision trees, multivariate analysis, break-even point, pay-off matrix, as well as inventory tables. These tools are extremely useful techniques in rational approach to decision making. 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