Future Trends in Operations Management

“A key feature of the current business environment is the idea that supply chains compete, not companies”

It has become commonly recognized that a company’s survival is primarily a question of its competitiveness. At the heart of it is the constant need to rapidly grow and capture the leading market positions. Modern economic conditions force businesses to provide the highest level of customer satisfaction by performing perfect consumer service, delivering a wide variety of quality products in shorter lead time and at a reasonable cost. This creates incredible opportunities for individual consumers and puts great pressures on companies to seek for the new ways to appeal consumers. Other that that, contemporary business environment brings a huge level of uncertainty to managers of all levels and urges them to be able to sense all the changes and implement the right and timely measures to be successful. This uncertainty may come from government decisions, customers and consumers, shareholders that demand increased return from what they invest into business. This is how Dennis McCarthy and Dr. Nick Rich describe current business situation in their book on business-led changes called “Lean TPM”:

“The new competitive conditions are far removed from those of the past and challenge strategies such that we can no longer assume that:

Past business success is a guarantee of future survival;

Product patens will protect a manufacturer from competition;

Buying the latest technology will provide a means of defense against competition.

Technology or products by themselves are not enough to guarantee survival” (McCarthy and Rich, 2004).

Clearly, as a result of the new trends and new economic realities managing operations and supply chain has become extremely complex and challenging.

We believe that the list of the key pressures that these authors outline in their book to describe modern economic conditions not only perfectly well describes challenges facing the world today, but also gives a good insight into how these may effect supply chain in particular, including its design, management and future business integration. According to McCarthy and Rich they include:

” 1. New and emerging manufacturing economies with low labour costs are attracted to mature Western markets where they can exploit their ‘cost advantage’.

The power of the internet in purchasing materials and components on a global scale and therefore access to alternative suppliers has increased exponentially. As such, power has shifted to the customer/consumer.

Deregulation of world markets has resulted from international trading agreements and this has liberated trade and increased competition for manufacturers.

Corporations have the ability to switch production.

Pressure groups and lobbyists seeking to lower prices or convince the manufacturer to improve their performance in areas such as environmental management.

Shareholders who expect a ‘year on year’ improvement in the returns on their money invested and constantly compare these returns with what their money could earn elsewhere.

Customers expect product variety, continuously improving quality levels, lead time reduction and want their stocks reduced” (McCarthy and Rich, 2004).

Benita M. Beamon also adds to this list extreme climate change as one of the essential factors that will also effect future world business configuration since its change would threaten transportation infrastructures, natural resources supply including the constrained supply of natural energy and raw materials as such, and would change overall human behavior patterns which as a result will drastically influence the ability to supply worldwide (Beamon, 2008).

Although operations and supply chain management is often seen as merely routine activities, it is indeed very sensitive to almost all business changes and, therefore, fairy regarded now as one of the critical business concerns and has the priority in managing the organization. This is why we chose to reflect on the above mentioned trends to study their effect on the supply chain and operations and, thus, track current and future challenges in this area.

1. It is now obvious that the world economy has faced large structural changes in recent years on the way to bring businesses to more international basis. There can hardly be found now any operation that does not sell to or buy from foreign markets. Globalization of businesses has significantly accelerated, resulting in new challenges for companies on the global market. Sixth annual survey performed by PRTM Management Consultants showed that respondents “consistently rank acceleration of supply chain globalization as a top priority over the next several years” concluding that “the primary shift of manufacturing and assembly operations has been to low cost country destinations including China, India and Eastern Europe” (2008). It can be summarized that expansion of operations’ supply chain to cover the whole world still stays number one trend due to its cost reduction opportunities and, therefore, puts additional challenges to cope with these increased pressures. With that in mind, product quality and safety as well as supply chain delivery and security become the main concern for organizations globalizing their supply chains, thus, providing additional business risks.

2. Number two trend logically follows from the business expansion – to improve global performance and flexibility companies seek for the alternative ways to control operations, fasten processes, and simplify procedures. Increased pressures are also put on them to improve coordination and achieve overall integration with suppliers and customers. Internet, e-commerce, e-procurement and other web-based applications offer major cost savings and advantages. Simon R. Croom studied the positive effects of e-business strategy implementation on supply chain management. In his research “Supply Chain Management in the E-Business Era” the following advantages were outlined:

New e-business infrastructures offer a wider range of activities within supply chain, e.g. electronic marketplaces including larger numbers of buyers and sellers;

Increased use of electronic methods for searching and sourcing which reduces coordination costs and increase the proportion of economic activities coordinated by markets, companies are encouraged to use more out-sourcing, low coordination costs will also enable companies to buy goods and services less expensively;

Information processing is reduced;

Additional opportunities provided by the use of E-procurement. Its advantages include: greater visibility of the procurement process, improved management of maintenance, repair and operating supplies, improved stock management, better information for purchasing decision-making, supply base reduction followed by the change of the supply chains’ structure, significant efficiency gains with the attention to the role and development of purchasing as a core capability of the organization, it also provides a powerful platform from which to exploit the organization’s strategic leverage and undertake major total supply chain cost improvements (Croom, 2001).

3. Number three trend, we believe, is another logical result of the two mentioned above – rapid growth of new information technologies raised the issue of accumulated information and knowledge management. Accumulation of knowledge relates to both customer relationship formation and product innovation process. At the heart of this concept is the recognition of the fact that knowledge is the key driver of the value-adding processes. It has been fairly noted by the theorists of operations management that “the way in which products or services were created was not random; they were the product of a whole collection of decisions and actions based on an even larger collection of knowledge” (Slack, Chambers, Johnston, 2007). So, it is obvious that the concept of knowledge management will significantly influence the future development of operations and supply chain management as it provides the expertise that underpins company’s competitive advantage.

4. Trend number four, that needs to be discussed in more detail, from our point of view, and should be grouped into a separate trend is that of the future integration of the supply chain and future development in such areas as business-to-business, business-to-customer and customer-to-customer relationships. It is indeed evident now, in the new era that the supply chain has become more connected and integrated that ever before due to the rapid growth of new information technologies, web-based applications and other alternative communication means. Companies constantly seek for developing new creative ways to communicate with suppliers, customers and consumers. It especially relates to service-based and product-based supply chain. On-line ordering, availability 24 hours a day, seven days a week, great variety of products and services, no issues with transportation and so on, all this has drastically improved the efficiency of the supply chain. Customers are also encouraged to communicate with each other by means of widespread social networks: blogs, forums, portals which allows instant information sharing. All this, we believe, will keep on changing the way in which the supply chain operates towards increased capacities and efficiencies of the supply chain.

5. Another trend that can not be mentioned with all reflected earlier is the problem of environmental responsibility and sustainability or “green supply chain”. Opinions of researchers differ here in weather it will be the result of the state legislation compliance and customer requirements or it will be one of the effective ways to improve company’s image and reputation. Our consideration is that it will be both. No need to deny that the pressures from the legislation are increasing which urges almost all companies to put in place relevant environmental management. The concept of “waste management” has also gained popularity in recent years as it implies waste reduction that in all its forms significantly saves cost for the organization which conventionally coincides here with environmental responsibility. We can already see that companies have started large campaigns towards recyclable materials application, new product design to consider their life cycle beyond their traditional shelf-life to extract more value from precious natural resources, reduction of energy and water consumption, use of alternative fuels and many other. It is obvious that the concept of environmental responsibility will take the key role in day-to-day operations management decisions and every day practices due to its great economic potential for the firm.

We think that this list can be continued with more and more trends and business challenges, however, from our point of view these 5 give the fullest picture of what to expect from the environment in which we exist. It reflects the key processes that both companies and each of us as a consumer is involved on the daily basis. We have identified some of the challenges and complexities that are characteristic of operations and supply chain today and have attempted to analyze these to possibly see their future development. It is obvious that uncertainty and complexity will still be the main characteristics of the global business environment in the future. However, managers will have the advantage of the emerging information and communication technologies that will provide real time data to support operational decision-making and will help to improve efficiency of processes in the area of the use of resources, materials handling and product design.

Question 2

In the second part of the assignment I will compare the company that I work for with the performed literature review and based on this comparison will outline its main competitive advantages.

I have been working for Nestlé for 6 years, starting from the small water factory just acquired by the Company. I worked as an Interpreter then, being heavily involved in the translation of the Group policies, specifications, guidelines and instructions, which the factory was going to implement to meet worldwide Nestlé standards. I believe it is an excellent example that reflects all challenges and perplexities of the modern business conditions.

With its headquarters in Vevey, Switzerland Nestlé was founded in 1866 by Henri Nestlé and is today the world’s leading nutrition, health and wellness company. It employs around 280 000 people and have factories or operations in almost every country in the world. The list of products includes over 127000 items of different types and sizes. This complexity, therefore, is the main characteristic of its supply chain. Managing thousands of supply chains in many countries, controlling invoicing of customers and collecting payments, predicting demand and tracking stocks all this at some point put the Company in a very risky situation which required such a solution that would put order in all this variety. So, the Company, had undertaken steps towards the implementation of GLOBE, or the Global Business Excellence model aimed at creating a single system to simplify and unify the way to manage supply chain and operate such functions, like purchasing and invoicing. The implementation of this model has provided not only an excellent tool to optimize operational cost, but also has served as a key driver for generating business value by creating a culture of continuous excellence, collaboration and support both cross functionally and between various operations worldwide.

It is indeed true that the implementation of GLOBE taught the Company to operate as a global market player. Another thing that the Company claims that has helped it to sustain in the times of turbulence and uncertainty is its strict compliance with the Company Corporate Business Principles that say: “Nestlé’s existing products grow through innovation and renovation while maintaining a balance in geographic activities and product lines. Long-term potential is never sacrificed for short-term performance. The Company’s priority is to bring the best and most relevant products to people, wherever they are, whatever their needs, throughout their lives” (Appendix, 4). It is always stressed, however, that the Company’s main business principle is the conviction that “to have long-term success for their shareholders, all the operations not only have to comply with all applicable legal requirements and ensure that all the activities are sustainable, but additionally have to create significant value for society”(Appendix, 2).

Other things that the Company claims to be the basis of its culture and is considered to be the essential part of its long-term established reputation are of course its quality assurance and product safety. The quality policy says: “Nestlé strives to create value that can be sustained over the long term by meeting consumer needs for nutrition, enjoyment and Quality they can trust” (Appendix, 7). This is achieved through “no waste attitude” and continuous improvement of the quality standards delivered to consumers. Adequate recourses, equipment, procedures and systems, trainings and teamwork play the major role in the implementation of high standards and achievement of excellence and competitiveness. “All functions across the Value Chain are fully responsible for observing mandatory principles, norms and instructions, for maintaining agreed Quality standards and for constantly improving them” – is another essential postulate of the Quality Policy (Appendix, 7).

Consumer communication is also considered within the Company as the key indicator of all ongoing activities. All opinions, complaints and shortcomings are analyzed and serve as a tool for immediate correction and improvement if needed. Nestlé Consumer Communications Principles state the Company’s commitment to “responsible, reliable consumer communication that empowers consumers to exercise their right to informed choice and promotes healthier diets” (Appendix, 3).

It is fair to note that supplier and consumer relations are an important part of the Company’s vision on creating shared value. Doing business in the way that requires from the Company’s contractors, subcontractors and their employees to demonstrate honesty, integrity and fairness; in the same way that the Company itself is demonstrating its commitment to its consumers. Supplier Code specifies these principles and helps their implementation within all suppliers and their community. By accepting these, suppliers take the responsibility of being compliant with the core principles of business integrity, sustainability, labor standards, safety and health, environment and other. Implementation of the vendor data base has helped to track and manage its suppliers in accordance with the Company principles and values.

One other concept that has been in focus in recent years is that of environmental management and sustainability aimed at improvement of environmental performance, operations activities in this area, risk and cost reduction, long-term availability of raw materials and water. In its Environmental Policy the Company states: “At all stages of the product life cycle we strive to use natural resources efficiently, favour the use of sustainably-managed renewable resources, and target zero waste”(Appendix, 6). Target areas for improvement initiatives include: application of a life cycle approach with systematic assessments of all activities across the Value Chain, effective water resources management to provide a common mythology to measure water footprint of products, processes and organizations, reduction of gas omissions from its operations through proper energy consumption management, switching to renewable sources and transport and distribution initiatives with focus on “green fleet” and optimization of the distributions schemes and packaging, elimination of wastes in all operations through the Value Chain with the goal of “zero waste and full recovery of unavoidable by products” (Appendix, 6).

The list of initiatives that Nestlé has undertaken can be much longer that these. However, we believe that these are the main ones that reflect the Company’s vision on doing business and on the way it adds value to all its activities to finally sustain and prosper in times of uncertainty and risk. As it is seen from our study it closely coincides with the literature review that we performed to define the major challenges and future trends in operations and supply chain management. This study proves the fact that constant development and applications of advanced information and communication technologies, focus on the development of relationships with both consumers and suppliers, expansion of the social responsibility with attention to environmental issues, social activities will be the main value-adding factors and efficient tools against business risks and uncertainties.

REFERENCES

Beamon B.M.(2008). Sustainability and the Future of Supply Chain Management. Industrial Engineering, University of Washington.

Christopher M. (1992) Logistics and Supply Chain Management. First edition. London: Financial Times

Croom S.R. (2001) Supply Chain Management in the E-Business Era. An investigation into Supply Chain Strategies, Practices and Progress in E-Business Adoption.

McCarthy D., Rich N. (2004) Lean TPM. Elsevier Butterworth-Heinemann

Sixth Annual Survey (2008). Global Supply Chain Trends 2008-2010. Driving Global Supply Chain Flexibility through Innovation. Available at http://www.prtm.com (Accessed: September 2010).

Slack N., Chambers S., Johnston. (2007) Operations Management. Fifth edition. Pearson Education Limited.

Steinert-Threlkeld T. (2006) Nestlé Pieces Together Its Global Supply Chain. Available at http://www.baselinemag.com (Accessed: December 8, 2010)