This is a paper from our action research course with Dr. Lars Mathiassen back in 2010! Mala Kaul, currently Assistant Professor at University of Nevada, Reno, and I conducted the class project together. We are glad it is accepted for publication at International Journal of Business Information Systems. We don’t see a lot of studies using action research as the research method because it is a challenging approach to meet the needs of both theoretical and managerial contribution. However, it is a great approach if we see ourselves as an engaged scholar to bridge the cap between the academic and practice. Regardless, it is great to see our class project turing into a journal paper!
As a reflection of the strategic importance of buyer-supplier relationships in supply chains, information sharing and knowledge exchange have been found to positively impact coordination, transparency, and perception of trust between buyers and sellers. However, our knowledge about IT as an enabler in buyer-seller relationships is limited. Against this backdrop, we examine how a large retailer, BuildSmart, adapted and leveraged a portal to help listen to the voice of their suppliers. Through a collaborative action research project, we developed a semantic sense-and respond approach to design and implement mechanisms that allowed BuildSmart to continuously sense how suppliers experienced their portal and how to generally improve their supplier relationships. As a result, we present a conceptual model for managing IT-enabled buyer-supplier relationships and demonstrate how conceptual modeling can be combined with sense-and-respond thinking to support IT-enabled process management.
Collaborative Action Research, Supplier Relationship Management, Sense and Respond, Supplier Portal, Conceptual Model, Buyer-Seller Relations, Semantic Approach
Recently, there have been a lot of discussion about China becoming the next innovation super power. A recent HBR blog “Get Ready for China’s Innovation Juggernaut” alerts the readers that China is making huge strides to transform themselves as an innovative nation. It uses examples that more than 100 million registered private enterprises in China; the Chinese firm Huawei was third among all companies in number of patents filed last year; and media conversation these days centers on when, not whether, China will produce a success story like Steve Jobs’. For the first time in 2009, four Chinese companies are listed in the 50 Most Innovative Companies ranking by Bloomberg Businessweek, while American companies on the list decreased from 35 in 2007 to 22 in 2009. All signs are pointing to the fact that China is going to become next innovation power house.
On the other hand, there are doubts existing about Chinese innovation capability. An earlier NPR report Plagiarism Plague Hinders China’s Scientific Ambition pointed out that 31 percent of papers with unreasonable copying and plagiarism. Blame lies in part with traditional Chinese culture, as many scientists believe, which values rote memorization and repetition and holds that copying a teacher’s work is a way of learning.
No one can deny the fact that Chinese government is pushing innovation with strong incentive policies. From WIPO data source, China is the only major country with increased Intellectual Property (IP) application in last two years when other countries experienced IP application decreasing because of financial crisis. We can argue that IP application only means quantity, not quality. However, we also see China has a dramatic increase in IP granted. Below graph illustrates Top 10 countries of IP granted according to WIPO data from 1995 to 2009.
Japan has been the leader of IP granted, followed by the United States. Korea surpassed Germany becoming the number third since 2004. However, China passed Korea in 2009 while Korea experiences a significant drop in IP granted since 2007. According to the NPR report, China is forecast to become the world’s leading innovator in 2011, overtaking the United States and Japan in number of patent filings.
There is no doubt that China is very good in enhancing current technology. However, the question lies whether China can create “disruptive” technologies or services, which can lead the market and build the brands, such as Apple, Facebook and twitter. Government policy motivates the number of IP application or grants, but perhaps majority of those innovation are incremental improvement and development, instead of breakthrough creations which can drive much more value for the business and the society.
Thus, come back to my question: will China become next innovation super power? To my knowledge, Chinese are still learning how to be more creative and more innovative. If China wants to become the most innovative nation, the government policy should drive a scientific culture which emphasizes quality, instead of quantity, with an innovative environment embracing patience, persistence and precision.
Before this Black Friday, I had no idea about Zhu Zhu Pets. Then over night, I learned about its hot sales situation from all Media outlets. A Google News search yields 2249 results as Zhu Zhu Pets have become this seasons’ most desired products and hottest news topic. This situation reminds me of the Nintendo Wii three years ago. Both Wii and Zhu Zhu Pets created such a unique Black Friday phenomenon: a hot product caused a huge buzz during Black Friday sales and “disappeared” from retailers’ shelves due to a supply shortage. Do you remember that Wii was sold at a premium in the black market three years ago? The same thing is happening to Zhu Zhu Pets, which is now being sold for as much as $50 at eBay, five times more than its original price!
There are a few things in common between Nintendo Wii and Zhu Zhu Pets:
1. Both are great products at a low price, creating great value for budget-cautious consumers. Wii is less than $200 and it is a game console designed for everyone in the family. Zhu Zhu Pets, the fuzzy robotic toy hamsters, are less than $10 and targeted at children. Both are well designed products with a great pricing strategy, which made them stand out from all other competing products in their respective categories.
2. Both products experienced surprised high demand exceeding the forecast and supply, and hence results in a shortage. From a supply chain point of view, out-of-stock is never a good thing because it means loss of revenue, especially when consumers can easily switch to competitive products. However, for both cases, because the uniqueness of the products, consumers will patiently wait for the products to be back on the shelf. We can see Wii as a good example. The market size for Wii did not shrink because of the supply shortage. I don’t like to diminish the importance of supply chain, however, it’s far more important to develop a great product to stimulate the market. The challenge for the supply chain here is how quick the products can be replenished from overseas and available for customers again.
3. Both cases might use a clever ploy to make the item more desirable by having a short supply. There were many speculations that Wii used this marketing scheme three years ago to make Wii such a popular product and continue to be one of the top console systems. (Example: Nintendo’s Wii: Privily, Why So Rare Art Thee?). Today the buzz caused by the shortage is behind us. We can see Wii’s piled up at any electronic store this year. I suspect that Zhu Zhu Pets is using the same ploy to make this inexpensive fuzzy toy the most desired product of this Holiday shopping season. The question is whether this cute robotic hamster can be the toy remaining on the shelf for years to prove its value proposition. Wii did it. I finally own a Wii console three years after its first launch. Now, let’s see if I will able to buy a Zhu Zhu Pets for my child after three years.
A green supply chain is like a mystery. The idea always conjures images of a higher cost and investment to the business. However, is that really the case? Will companies need to spend more to be green? How can green initiatives drive financial and social benefits? I hope my short article can answer these questions. In my last article, I discussed the approach to collect data in the supply chain to quantify carbon emissions. Once we can quantify and start measuring the carbon footprint of the company’s supply chain, we can find ways to reduce it and measure their improvement.
Before I start discussing the possible solutions, I would like also to express my opinion for the recent trend of using “green” as a reason to call for nationalization or deglobalization. The trend suggests that manufacturers should be moved back to the U.S. to shorten the supply chain distance thus reducing the carbon footprint. I agree that a short supply chain close to production or the end consumers can be beneficial in some cases, such as the JIT practice. However, according to IEA, International Energy Agency, international shipping accounts for approximately 2.7% of world CO2 emissions, which is small relative to the benefits brought by global trade. Hence it’s not the reason to prevent globalization and international trade. I’m a strong believer of “competitive advantage”, which is the way to promote global welfare and technological development. “Green” initiatives should focus on innovation and waste reduction, in either technology or process. “Green” shouldn’t be used for a political reason and incur more costs for the whole society. According to the North American Supply Chain Carbon & Sustainability report, moving production closer to home is 12% of all environmental initiatives. Practically, companies will be interested in the green initiatives only when they are able to achieve a lower financial cost and a better customer satisfaction at the same time. That is true that companies can develop products more environmentally friendly and some consumers are willing to pay a premium for the green contents, such as for a Toyota Prius. However, the majority of consumers are not ready to pay more for green, especially for commodities. Hence, to enhance a company’s competitiveness, the approaches to reduce the carbon footprint of the supply chain should also aim to drive cost efficiency and customer satisfaction.
Just like the total cost analysis for supply chain, there are many trade-off decisions to be made in green supply chain optimization, and the goal is to maximize carbon emissions reduction. I’d like to suggest the environmental initiatives from supply chain functions’ point of view, represented in the below matrix.
As we can see, many of those initiatives are day-to-day initiatives and process improvement activities to drive operational efficiency, increase recycling, reduce waste, and enhance communication and visibility in the supply chain. Hence, the outcome of the green initiatives not only improve operational effectiveness of balancing costs and service, but also reduce the carbon footprint from movements, spaces and materials in the supply chain. A “green” KPI or measurement enables companies to associate the positive financial results to the carbon footprint reduction. Once the mystery of “green” is discovered, the cost of green initiatives won’t become an implementation barrier and companies can benefit from quick financial and social return from those initiatives. As a result, the “green” strategy is not just a social responsibility. It becomes the “sustainable” and “desirable” strategy for any company.
A carbon footprint is “the total set of GHG (greenhouse gas) emissions caused directly and indirectly by an individual, organization, event or product” (UK Carbon Trust 2008). Once the size of a carbon footprint is known, a strategy can be devised to reduce it. Recently there are a lot of discussions around measuring carbon footprint in supply chain. UPS announced that they plan to reduce their carbon emissions by 20%, with an ability to capture and report on the carbon footprint of each package shipped by each customer, based on distance and mode. Wal-Mart announced the “green label” program to label the sustainability index each of products it carries, so “the retailer’s 100,000 suppliers around the world will have to calculate and disclose the total ecological costs of their products” (Daniel Goleman, Wal-Mart Exposes the De-Value Chain). Software companies are catching up to develop programs for supply chain optimization around a lower carbon footprint (Roberto Michel , Supply chain network design: its Green powers not exactly new). With government commitment to reduce global carbon emissions by 50% by the year 2050, businesses are scrambling about the opportunities to reduce carbon emissions. However, there is also a survey of company executives showing that it is “not the best time for launching big corporate initiatives” to calculate a company’s carbon footprint (Robert J. Bowman, Supply Chain Visibility: Lots of Talk, Little Action).
An end-to-end supply chain is a material flow from suppliers to manufacturers to distributors and ultimately to consumers in the end. So it can become a huge task to measure carbon footprint especially when many companies are also struggling with poor supply chain visibility. However, I believe that companies can take some easy steps to start quantifying their supply chain carbon footprint, and at the same time improve their supply chain efficiency and visibility.
From a supply chain management point of view, energy is used during transportation and manufacturing, and thus creates carbon emissions, also called greenhouse gases. The challenge for companies to reduce their carbon footprint is whether they have ability to quantity their current emission levels.
There are three key components in supply chain contributing to carbon emissions:
Any movement in supply chain, from inbound or outbound shipping to transferring products in the warehouse or on the factory floor, consumes energy and directly produces carbon emissions. Energy consumption is different based on different transportation modes, distances and weights. The calculation can be based on gallons of fuel consumed for transportation, and hence the footprint measurement can be calculated at the unit level during transportation.
In supply chain, space such as office, factory and warehouse are used to support supply chain activities. However, space consumes energy, such as electricity or heating oil. Excess or unnecessary space caused by supply chain inefficiency, such as excess inventory or poor packaging design, not only increase supply chain costs, but also produces unnecessary carbon emissions.
Material will be more difficult to be directly measured than movement and space, especially if the company is responsible for the end-of-life material management of toxics, hazardous materials, and waste. So a good way to capture the carbon footprint caused by different materiasl is to evaluate total energy consumed to process the material including its life cycle production and the end-of-life waste management. For example, a new material might take a longer time and more resources to produce from its raw components to finished goods, but it might require very little energy to process its waste. Therefore the total size of the carbon footprint for the new material is smaller.
For any company who is interested in taking actions to capture and quantify their carbon footprint, as an easy way to begin with, they can start from collecting data in their end to end supply chain, and convert those data into energy consumption and carbon emissions. The below matrix represents the data collection plan for a traditional manufacturer through different supply chain phases:
Absolutely data collection can be a big task, especially when a large amount of materials and products are involved. But once the database is established, the company can use those energy consumption formulas to quantify their carbon foot print of their supply chain, and thus implement sustainability KPI to measure their global citizenship accountability and environmental sustainability improvements. Once companies start to take action to measure their carbon footprint, they will not only see the reduction of their greenhouse gas emissions, but also the reduction of their supply chain costs, which I will discuss more in a future article.
When a company starts to hear their customers saying “it’s very difficult to do business with you” without providing exact details; when a company sees their internal customer service scorecard showing good numbers, but the customer survey result shows “poor service”; or when a company starts to see their long term customers switching to their competitors; it is the time for the company to evaluate their value chain to understand what they need to do win the trust and confidence back from their customers.
However, it seems difficult to figure out what customers are really looking for, and it’s difficult to decide which actions to take to improve the customer experience. There are many functions in the company, what exactly are the areas causing negative customer experiences? In order to understand what activities are leading to customer satisfaction, we can begin with the generic value chain and then identify relevant firm specific activities. “A value chain is a chain of activities. Products pass through all activities of the chain in order and at each activity the product gains some value.” (Wikipedia) Using value chain analysis will quickly help a company map out “touch points” with customers, capture pain points, and identify opportunities for process optimization. I’d like to use a case of an equipment rental company to explain how value chain analysis is used to identify issues in order to enhance customer experience.
In this case, customers choose to rent instead of buy equipment for a lower cost but at the same time expect good service. Customers can have the company deliver equipment to them or pick them up with their own trucks. After finish using the equipment, the customer can self return them to the company service locations or the company will arrange collection from customers upon request. Customers pay an initial fee when they receive equipment and then start to pay rent based on the days of usage. Below is the value chain analysis I did for the company to understand how each function interacts with customers and how they can impact customer services. Please note below analysis only include primary activities. Supporting activities such as procurement, technology, human resource and firm infrastructure are not in the analysis, although they can also indirectly impact customer experience from different prospective.
Primary functions of inbound logistics, operation, outbound logistics, marketing & sales, and customer services are interacting with customers on a daily basis; hence activities under those functions directly influence customers’ satisfaction and their purchasing decision. By breaking down those functions into activities, we can easily see the components in the value chain and how they create and build value for customers. By asking questions for each activity, we can thus realize what customers are expecting for each activity and whether there is enough to be done to guarantee customer satisfaction.
I’m not going to explain each activity in detail. The result of this exercise is to help company executives realize the challenges from their existing process structure and to make the right decisions and actions to truly “serve” customers. Executives should also face the fact that internal metrics are not always reflecting a customer’s true experience. When the metrics are designed to meet internal criteria and when those numbers are tied to employee performance bonuses, we can expect that employees are incented to make a good number instead of to provide good service. For example, on-time delivery performance is a key measurement for each employee in the company. However, the company only measures the shipments with Prove-On-Delivery (POD), and thus filters out at least 10% of data from measurement because carriers do not provide POD for every single shipment. The company measures on-time based on the final date stored in the system. When a shipment is going to be late, the employee in Logistics calls the customer to get “approval” of changing the date of delivery in the system, as if customer had another choice. At the same time, the company defines the on-time delivery window which is not necessarily what the customer is asking for. Using a six sigma term, there is a gap between internal specifications and external customer measurement. Unfortunately, because of political reasons and high pressure for “performance”, even functional high level executives are not willing to change the wrong measurements to correctly reflect real performance. No wonder that even with high performance numbers in the service scorecard, we can not prevent customers from switching to competitors.
From such a value chain analysis exercise, many functional experts can identify process improvement opportunities and take necessary projects to reengineer processes. However, without further data analysis, the analysis won’t lead to a priority list to allow the company to put the limited resources to the most critical processes. Besides, the company will not make fundamental changes without establishing performance metrics truly reflecting customers’ requirements. Value chain analysis can help companies to understand where they can create value for customers. However, only when the company truly embraces “customer experience” and makes fundamental changes will the value chain create real value for customers.