7102IBA Strategic Supply Chain Management Assessment 2 As explained in assessment one, [X] is a specialist business unit of [Y] Construction responsible for the procurement and supply (through hire arrangements) of all plant and equipment utilised on [Y] joint venture and alliance projects. The diverse nature of the [Y]’s business necessitates a complex, global supply chain and after a holistic review was conducted for assessment one, the upstream supply chain network was broken down into four main segments. 1. National network of hire companies which supplements the fleet of plant and equipment assets owned by [X] when internally capacity is reached or it is unviable to utilise own assets. This supply network can be located anywhere across Australia with expenditure in the range of two hundred and fifty to three hundred and fifty million dollars per annum. 2. Global and Australian Original Equipment Manufacturers (OEM’s) where brand new plant and equipment and spare parts are procured. Approximately fifty to one hundred and fifty million dollars are spent in this category per annum making this the second largest portion of expenditure for the business. 3. After market spare parts supply chain network where parts are procured for plant and equipment that are no longer within their warranty period. As with the OEM supply network, this supply network is also global however with a much lower annual spend; generally around five to twenty million dollars per annum. 4. The consumables supply chain is the last of the four segments and is a highly fluctuating network both in type of good procured and the fiscal amount expended; generally ranging from five to fifty million dollars. While any organisation with a global supply chain will experience challenges and complexity, the structure of the [Y] business and, specifically, how the different business units interpret and interact under the structure has led to ineffective and inefficient management of the supply network. [X] need to take active steps to remove these intercompany barriers to reduce uncertainty and improve the management and control of the supply network (Gunasekaran et al. 2004). The review conducted for assessment one analysed [Y]’s current supply chain network design in a holistic manner. Commencing with a review of the current integration levels being achieved both downstream and upstream, assessment one went on to analyse supplier selection, systems and technology, information management and data analysis, supplier segmentation, supplier management frameworks, global sourcing, governance, risk, sustainability and the capability of personnel, specifically the capabilities of the supply chain professionals. The review found there to be no cohesive strategy in the area of supply chain management (SCM) resulting in a fragmented and erratic approach to supply chain spend, increased exposure to risk, increased cost, inefficiencies, lack of competitiveness and an overall unsustainable way to undertake business operations. The long term viability of the organisation is questionable. The following areas were highlighted as key concerns and will be discussed in further detail in this paper. • Strategic supply chain integration • Supplier selection • Supply chain management / relationship management • Risk management An organisations supply chain network (SCN) design is a result of strategic decisions being made as to the internal and external capabilities to provide goods and services to customers (Klibi et al. 2009). The group executive of [Y] have already, at a strategic level, made the decision of what activities will utilise internal resources and what will be provided by others (otherwise known as an organisation’s insourcing and outsourcing decisions or the ‘make or buy’ decision) in relation to plant and equipment. Although [X] is technically an ‘internal resource’ of [Y], by structuring the [X] business in the current manner the supply of plant and equipment has effectively been outsourced from [Y]’s control to [X] allowing [Y] to concentrate on their core capability – construction. This is a key differentiator for the [Y] business and one which should bring competitive advantage however as assessment one detailed, this is not currently being realised. Coordination and integration of supply chain activities are universally accepted in research and practice as key strategic drivers of improved organisational performance and a way to achieve competitive advantage (Mackelprang et al. 2014). Despite inconsistent empirical findings on the quantifiable benefits of internal and customer integration (Mackelprang et al. 2014), the two business units should still seek to achieve integration as there is no cost implication in doing so and this should deliver greater end customer satisfaction (Kumar & Banerjee 2012), which as outlined in assessment one, is [Y]’s client. The current structure determines [X] has control of the upstream supply chain, therefore, it is [X]’s responsibility to ensure value is created for the ultimate customer. To deliver their value proposition, [X] should seek to realise full integration of both their upstream and downstream activities. Unlike most organisations, [X] has only one customer, [Y] who operate in an unpredictable market across a diverse location. [X] therefore needs to ensure that the upstream supply chain is robust and responsive to this changing business landscape. (Mackelprang et al. 2014) found that full supply chain integration results in improved financial performance of organisations and focussing integration efforts internally versus externally will deliver different benefits. Moreover, internal integration was found to improve cost and quality and can be achieved through improving collaboration (a long term relationship based strategy) (Kumar & Banerjee 2012) between the two business units. Trust is instrumental in building any form of relationship, including the effective relationships required for collaboration. (Laeequddin et al. 2012) found that trust and risk are complimentary to each other, therefore, by altering the existing business unit budget structures and removing inter-departmental competition, risk to both business units can be removed. This will lead to more trusting, collaborative and effective relationships which will ultimately improve the organisations profitability and long term sustainability. The strategic integration framework proposed involves the management of four integration levels: corporate, customer, supplier and supply pipeline (Juttner et al. 2010), where the corporate objectives are aligned for customer and shareholder value creation. Improved integration internally will result in alignment of corporate, customer and supply pipeline components. Once integration efforts have been realised internally, the focus can shift to external integration (supply chain centric) with the key objective to improve supply chain responsiveness (Melnyk et al. 2010), which (Qrunfleh & Tarafdar 2013) found improves an organisation’s performance. Supply centric integration will not be effectively realised however until the issue of supplier selection and management is addressed and appropriate frameworks are implemented. Supplier selection has emerged as an important topic in business and academic literature and been described as possibly the most important decision made in the supply chain process (Liao & Rittscher 2007). (Weber & Current 1993) defines supplier selection as Which supplier(s) should be selected and how much order quantity should be assigned to each supplier selected. Supplier selection is becoming increasingly important (Cadden et al. 2011) as organisations look to reduce their number of suppliers to reduce costs, decrease risk and improve administrative efficiencies. Furthermore strategic selection of the supply chain will allow [X] to align concerns around the environment and social responsibility (Gupta et al. 2013). The review undertaken of [X]’s supply base for assessment one revealed in excess of three thousand suppliers with new suppliers added regularly without adequate review. [X] currently has, and, will continue to have, a heavy reliance on the upstream supply network as they outsource activities in which they don’t have capability, or sustained competitive advantage. Therefore, the need to integrate strategic decisions across the supply network is crucial to long term sustainability (Juttner et al. 2010). It has already been determined that [Y]’s executives have made the strategic decision to outsource all plant and equipment responsibility to [X] however the author has found that this is where the strategy has ceased. There is no strategy on [X]’s make or buy decision or put more simply, whether [X] will purchase or hire the assets required to fulfil the demand of their customer, [Y]. This has added further complexity to supplier selection and goes some way to explain the current state of the supply base. [X]’s executive must first make the strategic decision of what plant and equipment to purchase and what to hire (the make or buy decision). As the [Y] business is as diverse in construction type as it is in geographical location, the decision should be made in conjunction with the [Y] business unit incorporating the long term future strategic direction of the parent construction business. By utilising [Y]’s forecast of targeted sectors, clients and markets, the executive will be able to identify and map all opportunities and uncertainties for plant and equipment demand. Once the make or buy decision has been made, efforts can be focussed on the type of suppliers required to supplement demand. The make or buy decision is critical as it will determine the level of global versus local supply chain complexity. Global sourcing is much more complex than local sourcing (Chan et al. 2008) and consideration must be given to additional and increased risk factors such as the political and economic landscape, social responsibility, financial background and performance. As [X]’s global sourcing extends beyond the one off purchase of plant to parts and consumables for the machines, it will be critical to ensure alignment of the global supply chain with not only the organisations environmental and sustainable objectives but to align with the objectives of each state and territory, for example with regard to fuel consumption and emission targets. Furthermore, alignment to safety standards and legislation is imperative as Australia has some of the highest safety standards in the world and plant and equipment that does not meet Australia’s safety legislation is unable to be used in this country. Moreover the make or buy decision will need detailed analysis of the total cost of ownership (TCO) which will require the establishment of a TCO framework and definitive assumptions on usage and cost. The ownership of many assets will last well over a decade therefore long term sustainability of the asset base should be the objective. The entire supply chain’s competitiveness is affected by the global supplier selection (Chan et al. 2008) and this will determine the strategy for [X]’s local supplier selection. Once a buy decision has been made, an exchange relationship will exist (Cox 2001) between [X] and the supplier and [X] must now decide how to manage the local supply chain network. (Cox 2001) argues that buyers should always seek dominance over suppliers which is outlined in the ‘power matrix’ which segments supplier and buyer power relative to one another. However, while this may be possible in the supermarket retail industry where there are few buyers, the plant hire industry is much more dynamic with many suppliers and buyers. Furthermore, most construction clients are now demanding minimum local supply chain spend in order to fulfil their corporate sustainability objectives so pursuing a dominant approach will not be sustainable for [X]. While seeking total buyer dominance is not advised, [X] will still need to leverage their power based on an anticipated significant spend in this area however consideration must also given to improving supply chain responsiveness through collaboration with the supply chain. This was demonstrated above to be a significant driver of improved organisational performance. By undertaking these strategic supplier identification activities, [X] will be able to rationalise their supply chain which will leave a manageable quantity of suppliers. This rationalisation will also allow the implemented supplier management framework to be more effective leading to a reduction in current administration inefficiencies. Furthermore, strategically rationalisation of the supply chain will minimise [X]’s exposure to threats in the future. Successful supply chain management involves horizontal cross functional integration throughout the supply chain (Burgess & Singh 2006) and can be achieved through development of collaborative, inter-organisational relationships. The purpose therefore, of supplier relationship management should be to generate value through shifting the focus from simple purchasing activities via a multitude of suppliers to building key strategic supply chain relationships. When successful, this transforms supply networks from supplier-centric (cost focussed) to customer-centric (value adding) networks. As [X] needs to reengineer their entire supply chain management approach, it is suggested that they adopt the Supply Chain Operating Model (SCOR) which was developed by the Supply Chain Council. The SCOR model is a flexible framework that will not only measure the effectiveness of the reengineered model, but will measure the ongoing performance of the supply chain. The SCOR model is broken into three categories; process modelling, performance measurements and best practice. A key component of this model will be the way in which the ongoing supplier management is undertaken and measured by [X] in the future. As outlined in assessment one, there is currently minimal management of the supply chain which the author has acknowledged, is due in part to the large, unmanageable quantity of current suppliers. After the strategic supply chain partners have been identified, [X] will also need to implement a supplier relationship management framework. This framework will help to determine, which suppliers, from those identified earlier, will be selected as part of the supply network and will outline the ongoing management and performance will be monitored. To determine who the supply chain partners are and how they will be managed will require detailed analysis of current spend and in what category the spend is occurring. This analysis will prove difficult due to the lack of information management technology currently used by [X] (detailed in assessment one) however critical to effectively understanding and managing the supply chain. Additional tools such as Porter’s Five Forces which analyses the levels of competition, PESTLE which looks at the external risks and Kraljic which maximises security and reduces costs can be used to further develop the strategic sourcing model. Once this information is obtained and analysed it can be fed into the strategic supplier relationship management framework. Once the analysis is completed, [X] will be much better placed with regards to segmenting suppliers and understanding where the concentration of efforts should be focussed. As discussed in assessment one, [X] has a handful of ‘preferred suppliers’ with another few hundred approved suppliers. There is minimal relationship management at present which only spans the handful of ‘preferred suppliers’ and outlines basic expectations only. Despite the preferred supply agreements outlining some basic key performance indicators (KPI’s), [X] are not currently measuring their supply chain against the KPI’s. (Moellar et al. 2006) argue that buyers should not seek to maintain relationships with suppliers out of convenience as this will hinder competition and responsiveness. It is therefore suggested that [X] develop comprehensive performance measures to keep the supply chain efficient. The selection of the performance metrics is however, one of the most difficult aspects of developing a performance based system (Beamon 1999). The metrics used should display a balanced approach taking into consideration the goals of the overall supply chain (Gunasekaran & Tirtiroglu 2001) and the value it needs to create. The framework proposed covers both financial and non-financial metrics in the areas of planning, sourcing, delivery and satisfaction/value creation. The author suggests that different metrics are developed for assessment by different levels of the organisational structure which will remove any unconscious bias and embed organisational values across the supply network. It is also important that the supply chain is regularly measured against these metrics with a proposed sliding scale of frequency where suppliers deemed critical, high risk or high spend are measured more frequently than others. Regular and transparent interaction will further develop trust behaviours enhancing the integration strategy. As detailed in assessment one and throughout the above, risk is prevalent across every aspect of supply chain management. Supply chain risk is complex as there are risks that can affect the internal organisation, risks internal to the supply chain but external to the organisation and those risks external to both (Christopher & Peck 2004). (Manuj et al. 2014) categorise risk into supply side risk and demand side risk and suggest that the risk management approach for supply side risk should include hedging or assumptions and demand side risk approaches should include postponement or speculation. The consequences of these supply chain risk events can range from catastrophic to minimal (Klibi et al. 2010) however, despite the potential dire consequences of poor risk management practices, [X] have yet to develop a supply chain risk management strategy. [X] should be less exposed to demand risk than most organisations due to the structure of the business however the business cannot become complacent. The recent termination of a two hundred million dollar contract ‘out of convenience’ by a [Y] client has left the [X] business unit extremely exposed. Millions of dollars of plant and equipment was procured for this project which is now left sitting idle with [X] unable to seek recourse. These recent events only highlight the lack of risk management processes currently employed and the author suggests that [X] implement a multi-criteria risk management process that evaluates the likelihood and severity of potential risk events and implement appropriate measures to mitigate or manage the risk (Manuj et al. 2014). This risk management approach should be incorporated into every aspect of the supply chain network design. [X] must seek to reengineer their entire supply network design in order to remain competitive into the next decade. 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