Supply Chain Principles - Assignment Example

SUPPLY CHAIN PRINCIPLES Name Grade Course Tutor’s Name Date Question 1: The primary motivation of the research conducted by Kam, Chen and Wilding (2011) was to find how production outsourcing risks were managed by apparel retailers in China. The study specifically investigated whether guanxi ­– a Chinese concept that stresses the need for mutuality in relationships – is invoked in managing apparel production risks. In their research, Kam et al. (2011) acknowledge that most retailers need to develop long-term relationships with the apparel manufacturers that they outsource production to. The foregoing is supported elsewhere in literature by Lin et al. (2007) and Kumar and Arbi (2008). Kam et al. (2011) notes the important role that consumer value has in determining the approach that an apparel retailer takes in the management of outsourcing risk. *** defines customer value as the contribution that a company makes to its customers. Customer value depends on all offering made by a company to its customers including the tangible products and the intangibles (e.g. services). Kam et al. (2011) further note that guanxi is not always applicable in the selection manufacturers; something that the authors indicate could be a result of cultural conflict between retailers’ own culture and the predominant culture in China. Kam et al. (2011) specifically note that business relationships in the western cultures are determined by other values that are impersonal and economically beneficial. The main argument that Kam et al. (2011) put forward was that the strategies that apparel retailers use to manage outsourcing risks mainly depend on their perception of value in relation to their customers. Specifically, Kam et al. (2011) indicate that retailers linked product values to product characteristics (e.g. fashion apparel items or basic apparel items), and the market environment (e.g. whether the market requires fast or moderately slow lead times). Kam et al. (2011) further indicate that the value apparel retailers placed on the products they dealt with determined the selection process through which they identified the manufacturers they could outsource the production to. In the basic apparel items for example, Kam et al. (2011) argue that the Chinese guanxi was not evident, mainly because retailers needed to work with manufacturers whose quality, speed, and technology was assured. Relationship forming was hence a product of reliable and profitable business. In the fashion apparel items however, Kamal et al. (2011) indicate that the apparel retailer did not use formal contracts, but instead used guanxi to enhance the business relationships it had with the manufacturers. Guanxi is nurtured through the mutual exchange of products and/or services (Cheng & Yeung 2012; Kam et al. 2011; Lee & Humphreys 2007; Wong & Wong 2013; Zhang & Pimpa 2010). It is hence perceived as an entrepreneurial tool, since when used, it nurtures the relationship between a retailer and the manufacturer. In cases where the relationship is not as important as the value provided by manufacturers, Kam et al. (2011) imply that retailers overlook the need for a close relationship, instead focusing on the quality, timeliness, and cost-effectiveness offered by manufacturers. The selection of manufacturers is hence identified as one of the main methods that apparel retailers use to manage their outsourcing risks. Notably, those whose products need to meet specific high qualities, on-time delivery and in-full (as opposed to partial) production insist on using strict manufacturer selection methods as a way of managing risks associated with outsourcing. Before a long-time contract with the manufacturer is signed therefore, the cooperation between the apparel retailer and the manufacturer is tested using a short-term contract. Testing is necessary in order to ensure that the manufacturer meets specified criteria. The company whose value was obtained from speed-to-market however had a different approach to managing outsourcing risks. Testing in such a company was done through issuing manufacturers with small orders, which if delivered in good time and in the right condition, would enable the retailer to forge longer-term outsourcing arrangements with the manufacturer. Such an approach has aspects of China’s guanxi approach to relating with others, and it appears that mutual satisfaction (or lack thereof), by the apparel retailer and apparel manufacturers determines whether the former contracts the latter in production. Question 2: The key contribution of Kam et al. (2011) to supply chain management and outsourcing strategy is related to the importance of managing risks associated with outsourcing. Through illustrating the importance of product value, supply chain managers and outsourcing strategists can learn the importance of defining product values, since such definition would enhance the management’s abilities to identify (and forge) the right outsourcing relationships. Additionally, managers would know the outsourcing requirements that drive consumer value. Kam et al. (2011) also affirm ***’s observation that production sourcing requires outsourcing companies to strike a balance between manufacturing and transportation costs. *** had noted that reducing transportation costs would require the adoption of flexibility by manufacturers, in which case they would need to produce varied batches in small quantities and this means that production costs would go up. A similar sentiment is expressed by Kam et al. (2011) while analysing TY Apparel. According to the authors, TY Apparel’s cost of production increased because it outsourced small batches of the same fashion item to different manufacturers. Another contribution of the paper by Kam et al. (2011) is highlighting the need for understanding local networks and cultures. Cultural differences and their impact on outsourcing has been discussed by several authors (Bartkus & Jurevicius 2007; Hofstede 2001; Kvedaraviciene & Boguslauskas 2010; Ramingwong & Sajeev 2005; Robinson & Kalakota 2005; Vashistha & Vashistha 2006). Kvedaraviciene and Boguslauskas (2010) indicate that compatibility between cultures acts as a catalyst between retailers and manufacturers. On the other hand, cultural adaptability is indicated as a business environment sub-criterion which retailers consider when choosing an outsourcing destination. Kam et al. (2011) also contribute to knowledge by identifying major outsourcing risks and describing their effects. The authors also note that outsourcing literature could benefit from more research on how best to manage delivery failure risks when outsourcing. This is tantamount to offering researchers a lead on existing gaps in knowledge. The conceptual framework in the research paper is based on an extensive review of literature, hence indicating that the research was based on existing knowledge. The authors have provided a relatively deep explanation of guanxi and its position in China, but start by acknowledging that the term (i.e. guanxi) is a Confucian construct that cannot be fully interpreted into English. Kam et al. (2011) have contrasted Guanxi with business relationships upheld by westerners, which are mainly guided by laws and rules. Seemingly, the difference between guanxi and the west’s approach to business relationship forming could be a source of conflict. The applicability of findings in Kam et al. (2011) may differ between outsourcers. However, it would appear that having well-defined product values is one of the key lessons that retailers can do in order to be specific when forging outsourcing relationships. Secondly, the importance of relationships and networks has been underscored by Kam et al. (2011) especially in relation to guanxi. By analysing two apparel retailers, the authors imply that the guanxi construct is beneficial in establishing outsourcing relationships, especially where customer value is derived through speed-to-market. A successful use of guanxi however appears to be linked to low technical requirements and small-scale orders. Another finding that outsourcers can use is related to carefully spelling out (e.g. through written contracts) any stringent production requirements that are technical in nature. By reviewing the case of CL China, Kam et al. (2011) imply that Guanxi, and/or other informal relationship networks cannot be relied upon where technical production requirements drive customer value. Other authors who have analysed formal and informal contracts when outsourcing to China include: Boehm (2013) who argues that the cost of enforcing formal contracts can increase the cost of production; Bozovic and Hadfield (2013) who indicates that outsourcing companies can potentially build informal relations using their formal contracts; and Cong and Chau (2010) who argue that the failure by the outsourcing companies and the parties they contract to understand contract and relationship issues have led to the failure of outsourcing attempts. Question 3: Several lessons can be learnt from the article by Kam et al. (2011). The major lesson however relates to customer value drivers being critical to the decisions made by the outsourcing companies regarding risk management. From the foregoing, it is evident that different outsourcing companies need to evaluate their customer value drivers and then decide how best to manage their outsourcing risks based on the same values. The implication of this on outsourcing strategy is that outsourcing managers may pay more attention to determining the exact values that customers look for. This is most likely to happen during strategy development. From TY Apparel’s experience, it would appear that engaging more manufacturers complicates the outsourcing process, thus leading to more associated costs. Similar sentiments have been expressed in literature by Carpenter and Wyman (2008), where engaging multiple manufacturers complicates the outsourcing process, and as a result increases the associated costs as well. The implication that the foregoing has on supply chain management is that managers who do not wish to engage with complex supply chains may opt not to outsource from multiple vendors. Others may however outsource based on the perceived benefits. Another lesson learnt from Kam et al. (2011) is that multi-sourcing can be used to increase competition among manufacturers and by so doing enhance the quality of products, and/or can be a strategy of ensuring speedy production. Notably, large vendors/manufacturers are not attracted to small deals such as those offered by TY Apparel; rather, they are more interested in outsourcing deals that require quality products through engaging their technical and knowledge capacities. The implication of this, and just as Kam et al. (2011) indicate, is that depending on customer value perception that an outsourcing company has, it can use multiple outsourcing in order to enhance competition (and hence quality) or get fast lead times. The commitment needed to successfully multi-outsource production may lead to increased costs as indicated by Kam et al. (2011). The costs notwithstanding, an outsourcing company is able to reduce the dependency risk associated with dealing with single (or a few) manufacturers. Co-ordination can also be taunting when multi-outsourcing. The implication of this in supply chain management is that supply chain managers may need to factor in increased costs of production, if at all they consider dependency risk reduction worth paying extra prices for. In some instances, multiple outsourcing may lead to longer lead times, and the supply chain managers may need to consider that as well. Another implied lesson in Kam et al. (2011) is that outsourcing companies need for cultivate an ability to manage relationships. The Chinese based TY apparel upheld guanxi and succeeded in the same, while the CL China used a different relationship management approach whose basis is in the US. Still, CL China succeeded in it management of outsourcing risk management. Based on this, it would appear that no single approach to managing relationships is fit for application in all situations. Rather, each outsourcing company needs to find out how best to forge and manage relationships based on factors in its internal and external environments. Kam et al.’s (2011) observation is similar to that of Dhar and Balakrishnan’s (2006), who argue that the inability to effectively manage relationships constitutes a major outsourcing risk. The implication of the foregoing outsourcing strategy may be that outsourcing companies may take time to understand the culture of the country they intend to outsource operations to. Through cultural knowledge, outsourcing companies might be better placed to use strategies that make forming relationships a much easier process. Finally, it would appear that supply contracts are still relevant for purposes of specifying quality of products, delivery lead times, prices and discounts among other things agreed upon by the outsourcing companies and the vendors (Bowersox et al. 2012; Kam et al. 2011; ***). The implication of this on supply chain management is that outsourcing firms will be more careful when deliberating and signing supply contracts. It is however noteworthy that both the vendor and outsourcing companies have vested profit interests in each contract that they sign. References Bartkus, E & Jurevicius, V 2007, Production outsourcing in the international market, Engineering Economics, vol. 1, pp. 59-68. Boehm, J 2013, ‘The impact of contract enforcement costs on outsourcing and aggregate productivity’, viewed 28 May 2014, . Bowersox, D, Closs, D, Cooper, M & Bowersox, J 2012, Supply chain logistics management, McGraw-Hill/Irwin, New York. Bozovic, I & Hadfield, G 2013, ‘Scaffolding: Using formal contracts to build informal relations in support of innovation’, pp. 1-59. Carpenter, G & Wyman, O 2008, ‘Risk management in the next generation outsourcing’, Hunton & Williams, pp. 1-20. Cheng, T & Yeung, A 2012, ‘Supply risk management via guanxi in the Chinese business context: the buyer’s perspective’, International Journal of Production Economics, vol. 1, pp. 3-13. Cong, Q & Chau, P 2011, ‘Relationship and contract issues of IT outsourcing – Descriptive case studies in China region’, pp. 797-818. Dhar, S & Balakrishnan, B 2006, ‘Risks, benefits, and challenges in global IT sourcing: perspectives and practices’, Journal of Global Information Management, vol. 14, no. 3, pp. 39-69. Hofstede, G 2001, Culture's consequences: comparing values, behaviours, institutions and organizations across nations, Sage Publications, New York. 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