Value Chain Management: Managing the chain, relationships, power and governance

Despite the importance of organizational alignment, many enterprises still struggle to align their strategies, competencies, resources, and management systems to achieve organizational purposes due to silo mentality (Trevor & Varcoe 2017). Exceptional companies like McDonald’s overcome the individuality of the teams and become aligned which results in greater effectiveness and efficiency. The alignment unites the company’s purposes, strategies, competencies, resources, and management structure. The organizational purpose is not just about making money rather a broader aim for what the people really care about. When the purpose is built properly, shared carefully and individuals work towards it, profit should come eventually. Business strategy fits the customer demand, company’s purpose and competitiveness together and shows how to achieve the purpose by capitalizing on the situational opportunities. For the intended alignment, then, the organization needs to have the right capabilities e.g. execution excellence, flexibility, connectivity, and creativity. Such competencies along with a resourceful pool of skilled people, positive cultures, relationship structures and standard operating procedures can facilitate the management systems to align the company with its purposes. Unfortunately, four mistakes can make this aligning process difficult- a) underestimating misalignment risks, b) no individual process ownership, c) underrating complexity, and d) lacking shared vision and the leadership. Moreover, to focus on short term gaining, many companies overlook organizational alignment and fall into the trap of volatile future and non-sustaining performances (Lee 2010; Trevor & Varcoe 2017).

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The study of Lee (2010) additionally focused on the collaboration of ‘end to end' chain members to ensure the sustainability of the society and environment alongside the business. As the performance of a chain member mostly relies on the other members, everyone needs to step up to tackle a given challenge. The example of Esquel clearly demonstrates that any scattered piecemeal initiative does not solve the problem of the chain. When Esquel received the demand for organic cotton, it simply did not cascade the order to the farmers rather adopted a holistic approach considering farmers’ profitability issues and its own technical inefficiency for handling new organic cotton. Such an approach required the company’s structural changes which allow the company to go beyond its stereotype thinking to identify the new opportunities in the chain, reinvent the production process, and deeply team up with the different supplier tiers, even with the competitors. In Esquel’s case, the company gradually equipped the farmers with knowledge, technicality, and finance to produce organic cotton and also reinvented its own production facilities with greater efficiency. Consequently, by the time when the buyer’s demand soared, Esquel was ready with the stable supply of organic cotton. Collaboration through structural change has made the supply chain greener that necessitated lesser operating costs and capital and gave a more competitive edge to the chain members (Lee 2010). The study also suggests how to pursue structural change for better trade-offs for sustainability. Firstly, the companies in the supply chain need to recognize sustainability as an integral part of their whole business operations which is similar to the process ownership thought of Trevor and Varcoe (2017). While mapping the internal supply chain operations, the company identifies the social or environmental issues that can be improved sustainably without sacrificing business performance. Secondly, internal operations need to be aligned across the organization (Trevor & Varcoe 2017) by identifying the redundant tasks, improvement areas, individual priorities, and customized performance metrics (Lee 2010). This approach should be able to bring the individual functional units to come out from the silo mentality. Afterward, devotion is to be given to collaborating with the direct supply chain partners. Thirdly, the company should tie-up with different tiers of suppliers and customers- the broader supply chain. For not recognizing this step, in 2007, Mattel- the toy company lost its brand image and had to undergo an expensive product recall due to the paint forgery from a third-tier supplier. To manage this highly challenging extended supply network, the company needs to find creative ways to keep the members incentivized and engaged. The final suggestion made by Lee (2010) is looking beyond the generic networks of the enterprise which is often more complex and risky. Nevertheless, to get a competitive edge by tackling the ‘scale’ challenges, teaming up with rivals can be a beneficial choice. European Recycling Platform (ERP), a joint venture of HP, Sony, Electrolux, and Braun is an example of such endeavor where ERP straightly cut 35% of the individual producer’s recycling and dumping costs. ERP was so successful that Apple, Microsoft, Nokia , and Dell joined the initiative later on. However, Lee (2010) and Trevor and Varcoe (2017) both agreed that without owning the alignment process by the core managers and individuals, it is impossible to attain such sustainability through so-called alignment and collaboration.

From power and governance exertion perspective, the paper of Richards et al. (2013) discussed how misalignment and non-collaboration can put a particular supply chain member in vulnerability- especially in superstore dominated food retailing sector in developed countries. To create differentiation, these giant entities impose stricter food safety measures on their suppliers as ‘private standards’ which are add-ons to government prescription. Such private regulations are noble for consumer satisfaction but it is costly for the individual supplier to meet the audit obligations for several private standards. However, finding no other sales options, the suppliers, who are usually big commercial farmers, are bound to tie up with the giant superstores under ‘armlock’ situation to get broader market access with no price advantage. Here, small and medium-sized farmers are out of the equation as they can neither meet up the onerous audit requirements nor fulfill the minimum order. Ultimately, they are out of the superstore-dominated oligopolistic retail markets in countries like the UK and Australia. But in Norway, government standards and certification for food safety are well accepted by the majority of consumers (85%) and the dominating superstores get the supply from the monopolistic farmers’ cooperatives that ensure the public food safety standards and interests of the farmer community (Richards et al. 2013). In both cases, agricultural restructuring happened due to the governance and power exercise of the market operatives which shape the particular supply chain. And to survive here, parties need collaboration with alignment and this fact is demonstrated by Lee (2010); Richards et al. (2013); and Trevor and Varcoe (2017) from different viewpoints- intra and inter organizations, power, and governance.

In conclusion, for sustainable value chain management, companies should look through the extended chain in a holistic way as discrete attention dwarf the benefits. Such an approach might benefit all chain members, especially the small and medium-sized enterprises if the stronger member practices collaborative behavior while exercising their power and governance.

 

References:

Lee, HL 2010, 'Don’t tweak your supply chain–rethink it end to end', Harvard Business Review, vol. 88, no. 10, pp. 62-9.

Richards, C, Bjørkhaug, H, Lawrence, G & Hickman, E 2013, 'Retailer-driven agricultural restructuring—Australia, the UK and Norway in comparison', Agriculture and human values, vol. 30, no. 2, pp. 235-45.

Trevor, J & Varcoe, B 2017, 'How aligned is your organization', Harvard Business Review, vol. 95, no. 1, pp. 2-6.