Sustaining Supply Chain Management in New Zealand
C Basnet*, Associate Professor
P Childerhouse, Senior Lecturer
L R Foulds, Professor of Manufacturing Management
V Martin, Senior Lecturer
Department of Management Systems
Waikato Management School
University of Waikato
Private Bag 3105
Hamilton 2020
New Zealand
*chuda@waikato.ac.nz (Corresponding author)
Abstract
This paper reports on an exploratory study of supply chain management practices in
New Zealand. The results from our survey of New Zealand manufacturers indicate
that there has been a significant increase in the general awareness of lean
manufacturing, supplier integration and quality improvement strategies. However
practice is still lagging behind. We present these results and discuss challenges that
are currently being faced by New Zealand organizations seeking to sustain and
improve their supply chain management processes. Certain facets of supply chain
management that require special emphasis in the New Zealand scene are discussed
and some examples of companies overcoming their supply chain management
challenges are presented. Finally, we summarize our conclusions and indicate
directions for further research.
Key phrases: Supply chain management, management processes, design, quality, and
sustainability.
1.
INTRODUCTION
Improved supply chain management (SCM) capability is critical to many New
Zealand organizations, which are often distant from their suppliers and markets, in
their efforts to compete in ever more demanding business environments. This is
because New Zealand supply chain managers along with their international
counterparts are being confronted with: growing competition, pervasive change,
relentless advances in technology, ever-shorter life cycles, and alterations to the
openness of markets.
Better communications and logistical innovations have
increased global accessibility. Technological advances and economic development
have increased market opportunities but also created more national and international
competitors and, increasingly, greater expectations from customers. Many supply
chain managers are realizing that traditional approaches are inadequate for keeping up
with these changes. These approaches do not provide the means or the incentives to
make the necessary continuous changes to remain competitive. To stay in business,
supply chain managers need to think and act differently, and the changes required of
them are profound. What differentiates ‘leaders’ from ‘laggers’ is the ability to
provide, in a consistent and sustainable fashion, products and services that reflect
higher quality, lower price, higher speed of transportation, and higher agility. Among
the concepts proposed to achieve these goals are: lean manufacturing, better design
and quality practices, and environmental sustainability.
The primary goal of the research reported in this paper is to assess and
facilitate the adoption of the above concepts in New Zealand. This paper reports on an
exploratory study of supply chain management practices in New Zealand. The results
from our survey indicate that there has been a significant increase in the general
awareness of lean manufacturing, supplier integration and quality improvement
strategies. However practice is still lagging behind. We present these results and
discuss challenges that are currently being faced by New Zealand organizations
seeking to sustain and improve their supply chain management processes. Certain
facets of supply chain management that require special emphasis in the New Zealand
scene are discussed and some examples of companies overcoming their supply chain
management challenges are presented.
The next section presents a literature review of empirical SCM studies and
SCM in New Zealand. This is followed by a discussion of sustainable SCM practices,
including the current state of SCM in New Zealand.
Then we present our
conclusions.
2
LITERATURE REVIEW
While there is plenty of published literature that explains or espouses SCM,
there is a relative lack of empirical studies examining SCM practices. Watts and Hahn
(1993) reported on a survey carried out to assess the extent and success of supplier
development programs. They found these programs to be broad in scope and quite
relevant (63%), especially among the larger firms surveyed.
The aim of these
programs was more to improve the quality and cost of the purchased products than to
improve the capability of the supplier. Krause (1997) carried out a survey of firms on
the extent of supplier development activities and on the benefits accrued from the
activities. The responding firms participated more often in limited involvement such
as supplier evaluation and feedback, site visits, requests from improved performance,
and promises of increased present or future business, than in extensive involvement
such as training/education of suppliers' personnel or investment in suppliers'
operations. While the supplier development efforts were generally fruitful, the buying
firms were not very satisfied with the results.
From this study, Krause (1997)
suggested a three-pronged approach of competition, business incentives, and direct
involvement in supplier's operations. Galt and Dale (1991) studied ten organisations
in the U.K., and found that they were working to reduce their supplier base, and to
improve their communications with the suppliers urgently. Tan, Kannan and
Handfield, (1998) sought a relationship between firms' SCM practice and their
performance. They were able to show positive and significant correlation between
certain SCM practices and performances of their respondent firms.
One of the main tenets of supply chain management is integration. A number
of studies have investigated how well supply chains are integrated in practice. The
findings are not encouraging: Towill, Childerhouse and Disney (2000) identified that
most companies are struggling with internal integration let alone attempting the
difficult task of external integration. These findings are backed-up by Fawcett and
Magnan (2002), who discovered that 47% of firms have not progressed past
integration of their internal operations. This is also borne out in the study of Al Falah,
Zairi and Ahmed (2003) who found that Saudi manufacturers are in the early stage
(internal integration) of supply chain integration. A survey by Poirier and Quinn
(2003) further validates these findings.
Turning now to internal SCM activities of firms, Jayaram, Vickery and Droge
(1999) found in their survey of U.S. automotive supplier industry that time-based
performance was positively related to business performance. Further, the action
programmes of preventive maintenance and standardisation had significant
relationship to time-based performance. Shah and Ward (2003) investigated four
“bundles” of lean manufacturing practice: Just-In-Time (JIT), Total Quality
Management (TQM), Total Preventive Maintenance, and Human Resource
Management, and used a survey of U.S. manufacturers to measure the relationship of
these bundles to operational performance. They found that the implementation of
each of these bundles significantly improved operational performance of the
respondents. Yarrow, Mitchell and Robson (2000) examined the adherence to
excellence in manufacturing practices by firms in North East England. A total of nine
performance criteria were used: process capability, maintenance, housekeeping,
kanban, supplier relationship, internal defects, progress chasing, customer delivery,
and customer satisfaction. The average scores (on a scale of 1-5) ranged from 2.55 to
3.27, thus indicating a mediocre performance by the respondents.
Abdul-Aziz, Chan and Metcalfe (2000) compared quality practices of
manufacturing industries in the U.K. and Malaysia.
They found that sampling
inspection was more prevalent than the use of modern preventive quality practices.
The U.K. industry had a higher incidence of ISO 9000 registration, but the Malaysian
industry had a higher use of quality improvement teams. Chin, Rao and Chan (2002)
surveyed Hong Kong manufacturing industries exploring the importance placed by
them on seven core quality areas and their performance on these areas. Customer
focus and leadership were perceived to be the most importance areas, however
customer focus strategies were practiced the most, while leadership strategies were
practiced the least. Laugen, Acur, Boer and Frick (2005) found from their survey that
the best-performing companies were distinguished by their level of adoption of
process focus, pull production, equipment productivity and environmental
compatibility.
Many articles have been published studying the design practices of
manufacturing firms. Meybodi (2003) in his study of firms that had implemented justin-time manufacturing practices found that these firms had better new product
development process. He found that, compared to traditional firms, JIT firms
performed better in product quality, product development time, product development
cost, manufacturing cost, and frequency of new product introduction. Primo and
Amundson (2002) found positive effects of supplier involvement on new product
development.
An important aspect of supply chain management is reducing environmental
waste and pollution throughout the supply chain. Florida and Davison (2001)
surveyed U.S. manufacturing firms to determine their adoption of environmental
management systems (EMS) and the benefits accrued from the adoption. They found
that a fairly large number of manufacturers were turning to EMS, and reported
substantial financial as well as community benefits. King and Lenox (2001) examined
the relationship between lean manufacturing and environmental performance through
a survey-based research. They found that lean production is indeed associated with
lesser emissions, that is, “lean is green”. Montabon, MeInyke, Sroufe and Calantone
(2000) examined the impact of the implementation of ISO 14000 environmental
standards on firm performance. They found that the performance of firms in each of
14 dimensions was significantly related to the stage of ISO 14000 certification.
In general, researchers have found a correlation between a firm’s performance
and their adoption of good SCM practices. However, the average level of adoption is
found generally to be low. In this paper we contribute further to the study of this
significant gap between theory and practice in supply chain management
Turning now to SCM practices in New Zealand, previous studies
(Anonymous, 1994) have found that New Zealand manufacturers were generally
lagging behind in the application of new concepts in manufacturing. Corbett and
Bayly (1991) surveyed Just-In-Time (JIT) implementers in New Zealand to determine
the perceived benefits, success factors, and problems related to JIT implementation.
The respondents did not find JIT implementation suitable for all manufacturing
operations, especially where overseas suppliers were involved. Hyde, Basnet and
Foulds (1995) concluded from their survey of New Zealand manufacturers that the
prevalence of world class manufacturing practice was low, although some exceptions
existed. The low educational levels of the work force and their supervisors, and the
isolation of New Zealand were seen as formidable barriers to the diffusion of worldclass practices in manufacturing.
Corbett (1998) carried out a cross-country
comparison of manufacturers along the measures of quality, inventory, and delivery.
He found that New Zealand was behind other countries in terms of stock turnover and
on-time delivery.
Batley (1996) studied the best manufacturing practices in Australia and New
Zealand and examined the link between manufacturing practices and firm
performance. They found that firms had improved their practices in the preceding five
years. There was also a strong correlation between adoption of best manufacturing
practices and performance in the areas of sales growth, export growth and cash flows.
Corbett (1996) found that globally-oriented manufacturing firms emphasized more on
quality improvement, process improvement, and design for manufacture, and these
firms had world-class manufacturing performance. Batley (1999) reported that there
was general acceptance of the concepts of total quality management in New Zealand,
although not all tenets were practiced. Knuckey, Leung-Wal and Meskeill (1999)
adapted the best practices model of Australian Manufacturing Council (Anonymous,
1994) to further assess the manufacturing practices in New Zealand. They found that
New Zealand firms had improved their practices in a holistic way. In particular, the
improvement was focused on the relationships in the supply chain, from the suppliers
to the customers. On the negative side, they stressed that improvements were needed
in the areas of human resource management, technology, and benchmarking.
However, Knuckey and Johnston (2002) found that the focus in supply chain
relationships was more on customers rather than suppliers. A recent study of
Australian and New Zealand logistics competences, by Mollenkopf and Dapiran
(2005) concluded that firms in these countries tend to be working on their internal
logistics/ supply chain processes and generally lack externally orientated capabilities.
Apart from these studies, there is a dearth of empirical studies on SCM practices in
general, and specifically in regard to New Zealand. This paper aims to fill this gap in
the literature.
3
EXPLORING SUPPLY CHAIN MANAGEMENT PRACTICES IN NEW
ZEALAND
Basnet, Corner, Tan and Wisner (2003) used a postal survey of New Zealand
manufacturers to benchmark their SCM practices. Twenty five commonly cited SCM
practices from the literature were identified to describe the construct of SCM
practices.
These included practices related to supply and materials management
issues, operations, information technology and sharing, and customer service. They
found that the proportion of the firms professing to practice some form of SCM was
quite high (90%), chiefly with a view to improve on-time delivery. The top three
SCM activities were:

On-time delivery of own firm’s products directly to the customers’
points of use

On-time delivery of own purchased materials directly to the firm’s
points of use

Determining customers’ future needs
Similarly, nine commonly cited concerns that restrain successful SCM were
identified and used to define the SCM concerns or hindrances construct. The top three
issues hindering SCM were:

Suppliers’ geographical distance

Lack of sophisticated information systems

Lack of ability in managing inventories throughout the entire supply chain
Obviously the geographical distance of New Zealand from global markets provides a
significant challenge to SCM activities. Even when there is a strong motivation for a
New Zealand firm to adopt SCM, the small size of New Zealand firms often makes it
very difficult to pull all the supply chain members into the implementation.
3.1
Research Objective and Methodology
We now discuss some further findings of the above-mentioned survey that we
believe require special emphasis in the New Zealand scene. While Basnet et al. (2003)
focused on the inter-firm SCM practices, this paper is focused on intra-firm practices.
Our research objective was to explore these practices with a view to ascertain their
prevalence. We used the survey methodology to obtain a representative sample. This
survey polled 627 largest New Zealand manufacturing organisations drawn from a
commercial database (KOMPASS). The results are based on the 69 usable responses
that were received (11% response rate).
3.2
Lean Manufacturing
Lean manufacturing, linked to the continuous improvement of supply chains,
has been known and practiced in Western industry for over 20 years. The notion of
waste being invisible, needing continual attention, and requiring innovative
technology, is now commonplace. As Flinchbaugh (2004) has pointed out, leanthinking supply chain managers dig below the surface to find the causes of waste and
work to eliminate them. It is an ongoing process, because waste continuously creeps
back into organizations and their operations.
The main concepts in lean
manufacturing are:
3.2.1
Inventory reduction
In lean production every effort is made to reduce inventory since inventory is
seen as wastage. Inventory should be produced only in amounts needed for the next
stage of production, only at the time it is needed.
3.2.2
Set up time reduction and small-lot production
Clearly, reducing set-up times can enhance supply chain management
operations by improving capacity. Set-up time reduction permits producing in smalllots, thus decreasing work-in-process inventory. This not only reduces inventory
costs, but also makes it possible to have immediate feedback on quality. Another
benefit is the reduction in lead times, which contributes significantly to better supply
chain management.
3.2.3
Just-in-time supplies
Lean production emphasizes not only just-in-time production of inventory, but
also just-in-time delivery of supplies by the suppliers. Supplier base is whittled down
to make it possible to integrate with the few suppliers left. Pushing the idea of smalllot-production to the suppliers, they are encouraged to increase their delivery
frequencies and deliver in small lots.
3.2.4
Total preventive maintenance
In lean manufacturing everything is done to smooth the flow of production.
Production equipments are kept in tidy, well-oiled, and maintained condition. The
responsibility of doing this is passed to the production worker.
The average importance rating (5 = high importance, 1 = low importance)
given to lean manufacturing practices by our respondents are given below in Table 1.
Table 1. Importance of Lean Manufacturing Practices to the Respondents
Practice
Average Importance
Rating
Reducing inventory, which in turn frees up capital investment
4.41
Reducing setup time
3.73
Increasing delivery frequencies
3.52
Reducing lot size
3.46
Preventive Maintenance
3.44
Reducing inventory to expose manufacturing and scheduling
3.35
problems
Reducing supplier base
3.29
Buying from JIT suppliers
3.17
Apart from inventory reduction, the other practices are not rated highly at all.
Even inventory reduction is valued from the viewpoint of capital investment, not from
the perspective of other lean manufacturing benefits. It appears that lean
manufacturing is practiced by only a few of our respondents.
The supplier
management aspects of lean manufacturing received particularly low importance.
Since New Zealand manufacturers are particularly concerned with on-time
delivery (Basnet et al. 2003), they need to give more attention to lean manufacturing
practices, particularly setup reduction, preventive maintenance, and JIT purchasing
since these practices have shown positive relationship to speed of delivery (Jayaram et
al. 1991).
3.3
Design Processes in Improved Supply Chain Management
The design and development activity of firms has also come under focus in the
efforts to improve supply chain management. Using common modules and parts
across multiple products allows the demand for these modules and parts to be
aggregated, which reduces the need for buffer stocks, reduces obsolescence, and
allows quick response. Following this concept of inventory aggregation, firms should
adopt the following practices:
o Standardization of component parts (trying to use more standard parts)
o Simplification of component parts (trying to use fewer parts)
o Use of Value Analysis/Value Engineering (deleting product parts and
materials which don’t add value to the product)
o Modular design of parts (for use in multiple product applications)
Another aspect of design and development is the lead time required for an idea
to turn into a product in the market. As mentioned earlier, this is a very important
competitive issue in the fast-changing global markets of today. Superior supply chain
management helps a firm in this endeavour by allowing the suppliers to be integrated
in the process. Suppliers need to be involved early in this process to give feedback to
the design team. Concurrent engineering is a term often used where all the stakeholders in the process, including the suppliers and the production function, are
involved early in the product design process.
Looking at the other end of the supply chain – the customers – they obviously
have a role to play in the design of products. Progressive manufacturers are using a
technique called Quality Function Deployment (the House of Quality model), which
permits customer preferences to be weighed against engineering specifications.
We asked our respondents about the importance they placed on the activities
mentioned above. The average ratings (5 = high importance, 1 = low importance) are
given in Table 2 below.
Table 2 Importance of Design and Development Practices to the Respondents
Practice
Average
Importance Rating
Use of quick product development and introduction time
3.32
Standardization of component parts
3.18
Early supplier involvement
3.00
Simplification of component parts
2.82
Use of Value Analysis/Value Engineering
2.76
Use of concurrent engineering
2.72
The use of Quality Function Deployment
2.50
Modular design of parts
2.46
All of the practices mentioned above are rated rather low in the firms’ efforts.
Top practices in the design and development area of supply chain management
receive scant attention from our respondents, even though these practices, particularly
standardisation have been shown to be significantly related to time-based performance
(Jayaram et al., 2003), which is an important objective for New Zealand
manufacturers (Basnet et al., 2003).
3.4
Quality Practices
3.4.1
Standardizing operations and ISO
The International Organization for Standardization (ISO) defines quality via
ISO 9000 as the degree to which a set of inherent characteristics fulfils requirements.
Quality characteristics are classified into several categories. If a company is seeking
to standardize its operations, it often attempts to gain a level of ISO certification. As
Clegg (2003) states, “ISO 9000, has contributed significantly to defining, developing,
and emphasizing the need for controlled documentation.”
This has particular
applicability in standardizing supply chain operations. Only 54% of our respondents
had IS0 9000 certification.
3.4.2
Process improvement
A number of practices have been identified that contribute to the improvement
of quality. Statistical process control (SPC) is designed to identify and decrease
process variation, which can have direct implications for supply chain management.
“Six Sigma” is a quality philosophy based on SPC. As Bossert (2003) has stated, “Six
Sigma and lean manufacturing work together to enhance production effectiveness.
16
The worker has the empowerment and skills to recognize a problem when it occurs
and, if it cannot be resolved, to shut down the line in order to eliminate the root
cause.” Total quality management (TQM) lays the primary responsibility for product
quality on top management, but stresses empowerment of workers to spot quality
problems, and to find solutions.
Inspecting quality into a product is considered
wasteful, since it happens after the fact. Instead quality should be designed into the
product, and monitored by the workers themselves while manufacturing the product.
Continuous process improvement (“kaizen”) is the cornerstone of TQM –
opportunities for improvement are continually identified and implemented.
One
source of identifying improvement opportunities is benchmarking – comparing own
operations with the best. Table 3 presents the importance placed by our respondents
on these practices.
Table 3. Average Importance Rating of Quality Practices
Practice
Average Importance
Rating
Process improvement (modification of process)
4.16
Top management communication of quality goals to the
organization
4.09
Designing quality into the product
4.00
Emphasis on quality instead of price in the supplier selection
process
3.92
Employee training in quality management and control
3.91
Empowerment of shop operators to correct quality problems
3.91
Inspection
3.88
Using benchmark data
3.47
Statistical process control
3.12
17
The ratings here are certainly better than the ratings for the last group of practices.
While it is pleasing that process improvement is perceived as highest in importance,
inspection is placed ahead of statistical process control! This is similar to the finding
of Abdul-Aziz et al. (2000) sampling inspection was more prevalent than the use of
modern preventive quality practices in the U.K. and Malaysia. New Zealand
manufacturing has been slow in adopting benchmarking as well. This is in line with
the findings of Knuckey et al. (1999).
Stabi-Craft Ltd (http://www.stabicraft.com/) is a company in New Zealand excelling
in its quality practices (Knuckey et al., 1999). The company manufactures recreational
boats in Invercargill, has a holistic approach to all aspects of the business, including:
leadership, planning, planning, and supplier relations. The company has committed
itself to customer-focused continuous improvement in its manufacturing operations
and maintains very close relations with its dealers and their customers. Stabi-Craft
Ltd has a quality and supplier focus through agreements with its suppliers to ensure a
very high standard of quality of all incoming materials. Standards are set so that the
quality of the boats does not reduce the growth of the business. Components are
checked as they move between the work centres and when the production process is
finished, Stabi-Craft tests the boats for safety and floatation, which is part of the
requirements of the Boating Industries Association. Also, the manufacturer engages
in enlightened employee practices, including: clear job descriptions, good induction,
review, communications, and training processes.
The company benchmarks via
dealer and customer feedback, employing a market-back, rather than a cost-plus
approach.
18
3.5
Environmental management of the supply chain
Leading companies are pursuing the “Three Zeroes”: zero waste, zero defects,
and zero pollution. Toupin (2001) states, “Less waste, a more efficient process, and
stronger materials are just a few of the benefits that come when designing with the
environment in mind. Designing for recyclability can not only earn a company
respect, but it can also save money and lead to an overall better product.” One of the
main examples of how design for recyclability is useful in supply chain management
is illustrated in the automotive industry. Mainly with noise reduction in mind, firsttier suppliers, in particular, have ramped up efforts to develop new automotive
materials that can not only help improve acoustic performance, but also meet the
added goals of reduced weight, lower cost, and improved recyclability. An indication
of environmental commitment is the adoptions of ISO 14000 (environmental
management standards) certification. Only about 9.4% of our respondents had
achieved this certification. New Zealand firms need to be made more aware of the
benefits of green supply chain management, such as those reported in Florida and
Davison (2001): improved compliance, reduced environmental risks, improved
stakeholder management, and better community relations. Adoption of lean
manufacturing concepts alone should improve the environmental performance (King
and Lenox, 2001).
The following is an example of a company that has shown leadership in supply
chain management sustainability in New Zealand (Knuckey et al., 1999). Design
Mobel designs, manufactures, markets, and exports bedroom furniture in Tauranga,
New Zealand, and is focused on a sustainable future for its manufacturing. It uses
only sustainable timber resources and has an extensive native tree replanting
19
programme in place, as the company plants a tree for every bed or furniture suite it
sells.
Also, as a part of its commitment to the environment, the manufacturer
sponsors schools to plant trees.
Currently, the wood shavings produced in the
production process are compressed into blocks which are used in landfills. The
company also has a remarkably low level of production waste in manufacturing
operations and is a top performer with regard to quality, lead time reduction,
leadership
and
planning,
supplier
focus,
employee
practices,
information
management, and benchmarking in New Zealand. For example, the company can
deliver its products faster to its Melbourne customers than its Australian competitors.
The company has both ISO9001 and ISO14001 accreditation. Design Mobel is
respected not only for its design and recycling but also for its general supply chain
management activities.
4
CONCLUSIONS AND DIRECTIONS FOR FURTHER RESEARCH
Over the past 15 years, many New Zealand organizations have made genuine
improvements in moving from cost-based to quality-based and customer-focused
supply chain management strategies and tactics. There has been a significant increase
in the general awareness of lean manufacturing, supplier integration and quality
improvement strategies. However practice is still lagging behind. Our research shows
that there is little awareness and practice of advanced design and development
strategies and of environmentally sustainable practices. Thus managers need to lay
more emphasis on these poorly addressed areas of supply chain management to gain
or sustain competitive advantage.
20
We have discussed some of the current issues faced by New Zealand
organizations that are seeking to sustain and improve their supply chain management
processes. Efforts to improve supply chain management sustainability should not be
viewed as a program with a definite completion date – the effort must continue as
long as the manufacturer exists. Patience, gradualism, and the acceptance that there
may be dips in productivity during temporary paradigm shifts in the management of
the supply chain have to be accepted. There is a positive correlation between an
overall, global, systems approach and an improvement in sustainable supply chain
management outcomes. One managerial implication is that firms need to advance on
all the areas discussed in this article to get the benefit of synergy among the practices
(Cua, McKone and Schroeder, 2001).
The contribution of the paper has been in reporting the state-of-play in the four
areas of supply chain management in New Zealand. This should help in the
identification of future strategies for firms, as well as future directions of research for
researchers. Limitations of this study include the low response rate from our
respondents, use of single informants, and use of a single methodology – the survey
method. This indicates that further work should be done to confirm/triangulate the
findings.
We believe productive future research may be carried out on the effect of New
Zealand’s unique circumstances (geographical isolation from the markets, small
population and market, small scale industries, etc.) on supply chain sustainability and
on developing strategies that suit these unique circumstances.. Longitudinal studies
may also be carried out tracking the progress made in the implementation of the
21
concepts discussed in the article. Further studies are needed to confirm or refute the
benefits of supply chain practices to industry and to identify contingent constructs that
influence the benefits.
Acknowledgment
The authors wish to acknowledge the contributions of Jim Corner, Joel Wisner, and
Keah Choon Tan to this study.
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