Learning and innovation in supply chains - Essay Example

? Learning and Innovation in Supply Chains of Introduction Supply chains are vital parts of communication between the manufacturer and the end consumer. Supply chains are managed and influenced by different persons/organizations/companies at different stages. The entire process of supply chains is highly complex but there are a few factors that affect their viability the most. It is an evolutionary process that requires continuous adaptability, flexibility and innovation. Supply chains are something that cannot be maintained with monotonous routine and neither can they function on the basis of past performance or success alone. The contemporary trends of rival companies, and knowledge and insight gained from past lessons of success or failure, and the resulting innovation in supply chains keeps companies alive. Thus, learning and innovation is fundamental to company survival and supply chain viability. 2. Continuous Learning and Innovation Knowledge development may enhance supply chains to a great extent and increase the effectiveness of the entire system of the supply chains ranging from production up till delivery to the end consumer. In the age of competition, companies strive to speed up their production and make quick deliveries via their supply chains without compromising on their quality. Consumers now enjoy the numerous alternatives of their required products and services and they prefer speedy deliveries. Thus, the competition between rival companies is not only based on quality but on timely deliveries as well. “Thus, fast cycle time facilitates increased market share, as well as lower overhead and inventory costs.” (Hult, Ketchen, Jr., & Slater, 2004) This shows that a fast supply chain is vital for the survival, growth and profitability of companies. It is incumbent upon large companies to maintain fast supply chains so as to keep up with the changing demands of the consumer market, mostly driven by time-based factors. Such measures also improve their efficiency and reduce overhead charges and inventory costs. By saving on these charges, companies derive extra profit by speedy deliveries. Hult, Ketchen, Jr., and Slater based their hypothesis upon: “achieved memory, knowledge acquisition activities, information distribution activities, and shared meaning—and cycle time.”(2004) It is highly essential for companies, especially their management and decision- makers to learn continuously about the changing trends of consumer market and how they affect supply chains. The expectations of consumers from supply chains like timely-delivery should be studied in depth, so as to incorporate achieved memory in developing strategies of companies. Achieved memory should be in no way considered as the final word- rather, knowledge acquisition activities should be continuously carried out to compete with the rival companies and to retain market share. Timely delivery also ensures maximum market share and profit. Consumers obviously prefer spending their money on such products and services that save their time. By gaining consumer trust through timely deliveries, companies can eye big shares in market. This type of a conclusion can be reached after investigating thoroughly the effects of timely-delivery on consumer market. “Said differently, the more knowledge chain members possess, the greater their awareness that additional knowledge can ultimately enhance outcomes.” (Hult, Ketchen, Jr., & Slater, 2004) All chain members should be involved in the learning process so as to make the entire process smooth and fast. As all members shall benefit from the enhanced outcomes, therefore the learning process should be shared by all. Increased levels of awareness lead to effective running of the supply chains and this can be achieved only through continuous learning. The acquisition of knowledge must be conveyed to all concerned departments/firms involved in supply chains- such activities are also known as information distribution activities. Information distribution activities orchestrate the supply networks of companies and enhance coordination among all levels of supply chains. If information is withheld or not conveyed duly by even one node of supply chain, the entire system shall be jolted. Miscommunication is also hazardous for the proper functioning of supply chains. Supply chains are not always managed by the same persons or firms. Therefore, it becomes all the more important to update all members of the chain about any new changes being implemented in the supply chain. The learning process of the new firm/individuals should be made quickly with mutual coordination or information distribution systems. This will save time and enhance productivity. Thus, chains require continuous information distribution in order to maintain strategic, operational, and technological integration. Previous retained learning, such as lessons from success and failure experiences, makes clear the need for information to be circulated (Bowersox et al., 1999). Thus, chains with more memory should distribute information more than those with little memory. (Hult, Ketchen, Jr., & Slater, 2004) For an effective supply chain, it is important to have shared meanings from the production line to supplying to dealers to end consumers. Each company develops a product with specific purposes and ethics. To maintain the integrity of supply chains, shared meanings must not be ignored. Supply chains that get contagious by imitation of behaviors might also affect shared meanings. “Information is important, but translating information into knowledge provides the basis for better management. Given the lack of deeply rooted cultures in supply chains, shared meaning becomes the critical mechanism to ensure coordination.” (Hult, Ketchen, Jr., & Slater, 2004) Information distribution systems can be made more effective by teaching all members of the chain. It is important to make sure that all chain members are working in the same direction towards the same goals. If information is not translated correctly, then the overall supply chain can become chaotic and the importance of shared meanings might be lost. “..we found a strong link between shared meaning and reduced cycle time, suggesting that leading members to think alike about concepts such as quality and speed (perhaps through emphasizing information sharing and face-to-face discussions) may improve chain performance.” (Hult, Ketchen, Jr., & Slater, 2004) Managing supply chains from remote places does not bring about the same level of effectiveness as that of face-to-face meetings. If all the members of the chain are thinking alike, then the process would be quicker and smoother. This means that in order to have a fast working supply chain, communication between and among all members of the supply chain must be promoted. This will optimize their understanding of shared meanings and consequently reduce cycle times. The focal point of supply chains is cycle-time. Large companies must achieve minimum cycle-time in their supply chains to keep up with their rivals. Cycle-time is not only dependant on production- it also depends on the consumer market trends. If there is a great demand of a product in the consumer market, the cycle time should be minimal so as to ensure speedy delivery. On the contrary, lesser demand in the consumer market shall make the cycle time sluggish. Learning and innovation in supply chains brings about tremendous changes in the ways companies perform in market. “Huber (1991) identified four key learning elements: knowledge acquisition, information distribution, information interpretation, and organizational memory.” (Hult, Ketchen, Jr., & Slater, 2004) Learning is a step-by-step and a collective process. The learning potential of one individual or the manager of the manufacturing company cannot change the way supply chains work. Each and every individual and firm involved in supply chains should be made part of the collective learning process. Acquisition of knowledge is followed by spreading the information across all levels of supply chain. The due and correct interpretation or translation shall convey shared meanings to the chain members and this process shall contribute to enrich organizational memory. ...market-based relationships among firms and vertically integrated firms (hierarchies) make up opposite ends of a spectrum of explicit coordination, and that network relationships comprise an intermediate mode of value chain governance. They identify three key determinants of value chain governance patterns: (i) the complexity of information and knowledge transfer required to sustain a particular transaction...; (ii) the extent to which this information and knowledge can be...; and (iii) the capabilities of actual and potential suppliers in relation to the requirements of the transaction. (Pietrobelli & Saliola, 2007) Network relationships are essential for the smooth functioning of supply chains. As this is a complex network, spread over different geographical locations, therefore, diligent value chain governance is required to oversee all sorts of communication within this network. Supply chains are the intermediate connection between the manufacturer and the end user. Hence, the networking of supply chains must be handled according to its specific needs, variations and requirements. The transmission of knowledge and information to key nodes of the supply chain is vital for information distribution activities. This way, each chain member would be aware of the ongoing changes, development or problems occurring in any part of the supply chain. There are however limitations to the distribution of information. It might be decided by the manufacturer to transmit specific information to specific agents of the supply chain. Such measures need to be carried out in a controlled environment and governance becomes a major task to handle. The role of suppliers is of critical importance in supply chains because they act as intermediaries between the manufacturers and the end users. Their capabilities and potential must be gauged and governed thoroughly, if possible, to ensure the desired outcomes. If suppliers belong to a central supply chain of a company then governance would not be a problem. However, for independent suppliers, the management of the manufacturing company should make careful selection of their suppliers as they become indispensible parts of their supply chains. 3. Need for Adaptability in Large Companies Organizational change is a hazardous process but imminent to the survival of the company. In the age of competition, it is becoming increasingly difficult for companies to retain their market share as the consumer market has numerous alternative options. This is of particular significance in places where industries are concentrated. Each manufacturer aims to outweigh its rival company by bringing about a new change in its products, services, quality or price. While such changes are meant to benefit the companies, at the same time they can be hazardous. A company might not be ready for bringing about essential changes as they would trigger a series of change throughout the supply chains and within the organization itself. Supply chains are comparable to the throbbing veins in the human body. A minor error can upset the entire process and negatively affect the image or the market share of the company. Despite this fact, market researchers have emphasized upon and appealed for adaptation, which is of paramount importance in the face of huge competition in the industrial world today. They focus on bringing about inner changes rather than extinction or replacement of obsolete methods or strategies. The managements of large companies gain confidence from their past performances and are prone to predict their future success on the basis of their past records, as researched by Barnett and Pontikes (2008). Companies may perform well in a certain context and predict their future performance on the basis of their past record; but the same rule does not apply to working in new and unfamiliar contexts. Such predictions can be actually hazardous for the survival of the company. The infrastructure of a company and the supply chains might be suited to only one line of production. In order to enter new arenas, it is imperative upon the management of the companies to study and gauge the risks of entering a new market. The requirements and the overall ground realities of each market are different from the other, and thus a thorough adaptive learning via research is essential before venturing into a new market. Though competition promotes adaptive learning in a certain context, yet large companies cannot solely rely on competition to augment their supply chains. Organizational changes are required to learn and develop adaptability according to the dynamically evolving market trends; therefore, it is important to adept to current competitive contexts. Organizations can go through two main phases of change- exploratory and exploitative. “However, not all adaptive change involves moving into new contexts. An organization can also engage in “exploitative” change...” (Barnett & Pontikes, 2008) Exploitative changes within an organization are not as drastic and critical as explorative changes. A company can opt to exploit such new markets that are related to its current context. This would not require overhauling the entire infrastructure or the supply chains. The related contexts might have overlapping markets and thus companies venturing into familiar arenas are at a lower risk than those entering unfamiliar territories. One of the biggest challenges companies face is surviving competition. When a company faces competition from a rival company, it discovers its own incompetency or unsatisfactory levels of performance in certain or all fields of its production line and supply chains. Thus begins the quest for improvisation by searching for possible solutions. This kind of search is named ‘problemistic search’ by Barnett and Pontikes, as it is developed once the problem of surviving competition arises. Once the desirable levels of performance are restored or achieved, the company becomes a strong rival of its competitors. “In an ecology of learning organizations, competition and organizational learning each trigger the other in an ongoing, self exciting process: the Red Queen.” (2008) The Red Queen theory revives the theory of the survival of the fittest company in the wake of increasing competition in the industrial world. “In reality, we expect that the Red Queen will increase the exploitative abilities of organizations both through selection and organizational learning.”(Barnett & Pontikes, 2008) Companies need to assess and develop their strategies for exploitative changes with careful selection of strategies at their organizational level. “The Red Queen enhances the exploitative abilities of organizations, but in so doing it limits organizations’ ability to explore.”(Barnett & Pontikes, 2008) This is because companies may find it safe to play their cards in familiar markets rather than exploring new and unfamiliar contexts. Explorative changes are prone to magnanimous risks and might bring a fatal end of the companies. The past record of companies tempts the management of the companies to venture into new markets either out of “success bias” (Barnett & Pontikes, 2008) or desperation. Companies failing in one context over a long period of time may desperately move into new markets to try their luck. A research was conducted by Barnett and Pontikes(2008) in the computer industry of the United States to assess the Red Queen Effect upon entering new markets. The manufacturers of computer industry were broadly classified under: mainframe or large computers; medium sized computers; and mini-computers. ... over the industry’s history, the great majority (about 88%) operated within a single market, about 11% operated in two markets at once, and only about 1% operated simultaneously in all three markets... For instance, Data General, the legendary minicomputer pioneer described in Kidder’s (1981) novel Soul of a New Machine, confidently introduced a microcomputer in 1983... According to a former Data General engineer who left the company at that time to start his own microcomputer firm, Data General’s move into microcomputers was harmed by its history of success in minicomputers. (Barnett & Pontikes, 2008) This shows why organizational changes are hazardous if learning and innovation in supply chains is not taken into consideration. The failure of Data General, a large company, also explains why large companies are at a disadvantage to anticipate and react to changes in their markets and networks. The management of Data General relied upon its past success and disregarded the learning process that was required for entering a new market of micro computers. 4. Imitating Behaviors Supply chains are affected by dyadic relationship between manufacturer-dealer and dealer-consumer. In a study conducted by McFarland, Bloodgood and Payan (2008), the influence of behaviors resulting from non-economic reasons on the supply chains were studied. It was hypothesized that firms imitate organizational behaviors on macro-institutional level and micro-institutional level. “ ... reflexive imitation, compliant imitation, and normative imitation motives.” (McFarland, Bloodgood & Payan, 2008) The imitation of behaviors in a vertical relationship from the manufacturer/supplier to dealer to end consumer is of three kinds: reflexive, compliant and normative. … it suggests that organizations operate within a social network and that imitation between organizations occurs under (1) reflexive conditions of environmental uncertainty and similarity and (2) normative conditions of contact frequency but is less likely to occur under (3) compliant (or noncompliant) conditions of dependence asymmetry. (McFarland, Bloodgood & Payan, 2008) Manufacturers/suppliers may adopt influence strategies that make the supply chains contagious- meaning thereby, that the entire chains come under the influence of such strategies. The attitudes and behaviors of suppliers inadvertently affect the behaviors of the dealers who in turn might adopt the same strategies while marketing or selling the product. The imitation of behaviors by the dealers may send different messages to the end consumers. Influence strategies affect firm’s behaviors either due to environmental uncertainty, which provides a low cost solution, similarity or a safe choice. “…individuals who interact in the same organizational environment come to accept a narrower range of behaviors as the norm to attain or maintain legitimacy.” (McFarland, Bloodgood & Payan, 2008) The six influence strategies as outlined by McFarland, Bloodgood and Payan (2008) are: information exchange, recommendations, promises, threats, ingratiation, and inspirational appeals. It can be noted that these strategies are motivated by non-economical factors and in many cases, the manufacturers/suppliers might not be aware of the behavioral changes triggered in the supply chains by their attitudes. Pietrobelli & Saliola have found “...a significant and positive relationship between firm productivity and governance...” (2007) Effective governance can sort out all issues across the chains and make positive impact on the profit and productivity of the company. Information exchange between manufacturers/suppliers and dealers might be shared between the dealer and end consumer. The consequences of such action are variable, but in most cases are unnecessary. The image of the company or the product as built by advertisement and other marketing strategies might be overshadowed, as a result of information exchange. Similarly, recommendations, promises, threats, ingratiation and inspirational appeals made by the manufacturers/suppliers to the dealers might be conveyed to the end users. Such behaviors make the supply chains vulnerable to uncontrollable situations, which can be detrimental to the policies, image and interests of the companies. “By acknowledging that supply chain contagion might occur, managers should be better able to structure their behaviors to provide the best chance for imitation when it is desired and the least chance for imitation when it is not.” (McFarland, Bloodgood & Payan, 2008) The downstream imitation of behaviors is a result of various factors according to McFarland et & al are: a. Environmental uncertainty; b. Manufacturer-dealer similarity; c. Interdependence and dependence asymmetry; d. Frequency of contact; e. Industry tenure. The consequences of imitating behaviors are different for different supply chains and whether the interacting firms are old or new. Older firms might be able to rely more on experience and might be more prone to habitual behavior than newer firms. Larger firms might be less likely to imitate smaller firms. In addition, there may be an array of interactions among these factors that could shed light on supply chain contagion. (McFarland, Bloodgood & Payan, 2008) Newer firms are more prone to come under reflexive, compliant or normative imitation of behaviors of the older firms. They might adopt the attitude of the larger firms as a norm of industry, or an obligation, or part of their job and make it a habit. Moreover, a combination of all factors might trigger imitation of behaviors in firms which make this phenomenon more complex. 5. Stimulating and Promoting Learning and Innovation in Supply Chains The performance of rival companies is greatly affected by speed and innovation - “how firms are motivated to search, act, and learn in a desire to improve performance.” (Derfus, Maggitti, Grim & Smith, 2008) The only way to compete with rival companies in order to survive and to excel is through improvisation of performance. The success of companies is gauged by the way they perform in the consumer market. Performance can be improved by continuous and rigorous learning, speed and innovation. The time factor is crucial- in a neck-to-neck competition between rival companies, the one who makes it faster shall be deemed the winner. Product standards include specific designs, technical characteristics and attributes of a given product, as well as sector specific technical standards and product safety standards. Such standards are of critical importance, especially to well functioning global production networks without which globally dispersed supply chains could not function. They are also keys to the issue of technical innovation in product design. (Hawkins et al., 1995; Sturgeon, 2003; Hess and Coe, 2006). (Nadvi, 2008) The role of supply chains in this regard is to uphold the specific technical and product safety standards. A focal firm may have developed different sets and standards of strategies for different departments. The outcomes of such strategies show how successful those strategies are in their respective areas. Thus the actions of a focal company might be monitored closely by the rival companies so as to assess the secret of its success. The actions of a focal firm trigger a series of actions and reactions by the rival firms. As the rival companies speed up their reactions, the focal firm tries to enhance its level of performance to perfection to counter the speed of its rival companies. “…if rivals are to survive in the marketplace, they cannot afford to ignore the competitive actions of other firms; they must also act creatively. The innovative competitive interaction of firms in pursuit of profits is so fundamental that Schumpeter (1976) argued it was the key source of market expansion and economic growth.” (Derfus, Maggitti, Grim & Smith, 2008) Thus it is established that creativity and innovation driven by a continuous learning process results in market expansion and creates healthy and progressive competition among rival companies. Though the main motive behind all business activities is gaining more profits, yet it is achieved through learning and innovation in the supply chains. “When a firm leads with a new product or service, it puts pressure on competitors’ products and services, perhaps to the point of rendering them obsolete. Those competitors must act if they are to stay viable.” (Derfus, Maggitti, Grim & Smith, 2008) The need for creating new products arises from the sheer fact that the existing products would become obsolete. The urge to staying up-to-date with consumer demands drives the companies to come up with something new and interesting, every now and then. Industry concentration also renders the nature of competition between rival companies. The degree of competition must be different in places where industries are concentrated from those where they are in demand- “… the relationship between focal firm actions and rival actions is more intense in highly concentrated industries and less intense in high-growth industries.” (Derfus, Maggitti, Grim & Smith, 2008) 6. Conclusion Large companies have specialized infrastructures and strategies for their supply chains. They have developed and coordinated the network of their supply chains usually in a certain context. The management keeps the past track of the company’s performance in view, while making important future decisions of expansion and other business activities. Sometimes, they are mistaken to believe that their past success can lead to future success. This is because they overlook the importance of learning and innovation in their supply chains. The trends in the consumer market are changing every minute and in order to keep up with them, managers should conduct in depth studies before venturing in new markets. “… we found that rival actions have a greater negative impact on the performance of market leaders than on the performance of non–market leaders; in essence we found that “the larger they are, the harder they fall.” (Derfus, Maggitti, Grim & Smith, 2008) The ever growing competition between companies has given birth to the Red Queen Effect. In an effort to outweigh rival companies, managers only believe in moving fast ahead of others. Companies actually have to move twice as fast so as to beat their rivals. The speed with which the demands of the consumer market are catered to matters a lot for their survival; but in order to grow and to excel, they must learn through their past lessons of success and failure and the current trends in the consumer market. Innovation and creativity in supply chains makes this competition beneficial for overall economic growth and expansion. 7. Limitations: Supply chains are normally operated in a decentralized way in that the members involved in the chain belong to separate entities. However, there can be a centralized chain in that all members belong to one entity, such as the chain within a super global company. A centralised chain will achieve the best performance because of the cost structure, but it rarely exists since no matter how big is the size of a company, it will have to deal with outside suppliers. (Wang, Wang & Kobbacy, 2008) The limitations of this study are that the chain members are assumed to belong to the same entity. This might be true for domestic chains but in case of many large companies, the chain members are often globally dispersed and information sharing activities cannot be conducted in a controlled manner. In case, people or firms working along different nodes of the supply chain benefitting from information distribution activities are replaced by new entrants, then the purpose of information distribution fails. This can add to the costs of the company which might not be feasible for any company in the wake of the current economic crisis. In most cases, suppliers are working with multiple supply chains by different companies. Therefore, it may be possible that they do not comply with information distribution activities of a particular supply chain. In theory, the system of information distribution seems simple but its implementation is complex owing to the widely dispersed chain members across the globe and involvement of suppliers with multiple supply chains of more than one company. This requires further studies to investigate how effectively the communication link can be maintained across supply chains, even if some key persons or firms are replaced by new entrants. References: Barnett, P. W. & Pontikes, G. E. (2008). “The red queen, success bias, and organizational inertia”. MANAGEMENT SCIENCE 54(7), 1237–1251. Derfus, J. P., MAGGITTI, G. P., Grim, M. C., & Smith, G. K. (2008) “The red queen effect: competitive actions and firm performance”. Academy of Management Journal, 51 (1), 61-80. Hult, T. G., Ketchen Jr., J. D., & Slater, F. S. (2004) “Information processing, knowledge development, and strategic supply chain performance.” Academy of Management Journal, 47 (2), 241-253. McFarland, G. R., Bloodgood, M. J., & Payan, M. J. (2008) “Supply Chain Contagion”. Journal of Marketing.72(2), 63-79 Nadvi, K. (2008). “Global standards, global governance and the organization of global value chains”. Journal of Economic geography, 8 (3), 323-343. Pietrobelli, C. & Saliola, F. “Power relationships along the value chain: Multinational firms, global buyers and performance of local suppliers”. Cambridge Journal of Economics, 32 (6), 947-962. Wang, W., Wang, H., & Kobbacy, H. A. Analysis of a supplier’s contract from a supplier’s perspective. IMA Journal of Management Mathematics, 19, 17-37. Read More