supply chain management

in the

manufacturing industry

Duy Kiet Tran (10210856) Kardin Edista (10029508) Saumya Kandoi (10185674)

Tutor: Heidi Sundin Tutorial: Friday 7 to 9pm

Table of Contents

Quick Find Contents ...............................................................................................2 Executive Summary ................................................................................................3 1.0 Introduction.......................................................................................................5 2.0 Problems & Risks..............................................................................................6
2.1 Supply disruption .......................................................................................................................................... 6 2.2 Information integrity...................................................................................................................................... 8 2.3 Planning supply and demand........................................................................................................................ 10 2.4 Compliance and regulation .......................................................................................................................... 12

3.0 Solutions and social context evaluation ........................................................... 13

3.1 Reducing supply disruption risk................................................................................................................... 13 3.2 Information integrity management ............................................................................................................... 14 3.3 Improving supply and demand planning....................................................................................................... 16 3.4 Strategies for regulatory compliance ............................................................................................................ 18

4.0 Conclusion & Recommendations .................................................................... 20 References ............................................................................................................ 21 Appendix .............................................................................................................. 23 Individual Assignment Evaluation Sheets ............................................................. 27

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Quick Find Contents

Influence on pricing Problems & Risk strategy Areas

Supply Disruption Section 2.1

Information Integrity Section 2.2

Ineffective supply and demand Section 2.3

Regulatory compliance Section 2.4

Section 2.1.3

Section 2.2.4

Section 2.3.5

Section 2.4.3

;Evaluation in a social Recommendations context and Solutions

Section 3.1

Section 3.2

Section 3.3

Section 3.4

Section 3.1.2

Section 3.2.3

Section 3.3.3

Section 3.4.2

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Executive Summary
Objectives This paper primarily identifies the supply chain (SC) problems commonly faced by manufacturing firms and their impacts on pricing strategy to the entire SC. A range of solutions are suggested to address these problems, furthermore the applicability of each of these solutions significantly depends on their social ramifications that are systematically evaluated. Methods and data sources A series of research studies were conducted and the information presented in the entire paper is abstracted from a variety of authoritative data sources, namely, scientific and practitioner literature, and survey-based reports. Key findings It was identified that the major problems commonly faced by manufacturing firms were: Supply disruption risk acts as a logistical impediment; Inaccuracy and inconsistency of information breed inefficiency between SC entities; Uncertainty in supply and demand jeopardises the decision making capabilities of manufacturing firms; and Regulatory compliance stagnates the dynamism of the SC.

Conclusion Several solutions are suggested to address these problems. Firstly, supplier disruption risk can be remedied by utilising various suppliers and global outsourcing. Secondly, information integrity can be enhanced by standardisation and embracement of new technology. Thirdly, planning of supply and demand can be improved by organisational leadership, SC and value re-engineering and multi-enterprise collaboration. Finally, regulatory compliance can be addressed by establishing a total risk management culture for total quality management.

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Recommendations The most crucial of the abovementioned solutions to the manufacturing industry for effective supply chain management is the embracement of new technologies, specifically e-manufacturing and instilling a risk management culture with senior management acting as catalysts.

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1.0 Introduction
SC management constitutes the series of interdependent upstream, manufacturing and downstream processes targeted at transforming raw materials into products to meet customer demand1.

Figure 1: Illustration of the upstream, manufacturing and downstream activities within the SC. Adapted from reference 1.

In the backdrop of global markets, increased competition and extended SCs manufacturing firms are now confronting new challenges. The need to eliminate waste, embrace new technologies, improve on supplier/ customer relations, better manage inventory, comply with regulation, and be more cost efficient is becoming more apparent in the quest to achieve operational excellence. Most manufacturers compete in oligopolistic markets where it is necessary to consider competitive behaviour before devising a pricing strategy. Furthermore, pricing strategies in SC management brings into context the value chain where it is necessary consider the value added through each process of the chain and the value perceived by customers.2

Slack N, Chamber S, Harland C, Harrison A, Johnston R 1998 Operations Management 2nd Edition Pitman Publishing
2

Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 Management Accounting and Australian Perspective, 3rd Edition McGraw Hill, Sydney Page 5 of 30

2.0 Problems & Risks

2.1 Supply disruption

2.1.1 SC disruption poses technical or behavioural problems for manufacturers. Technical problems include equipment malfunctions, system failures, and financial distress; while labour strike and human fraud are behavioural problems. In addition, disruption may occur from other uncontrollable events such as natural disasters and terrorism. 3

Figure 2: Illustration of the drivers of supply disruption and the resolution process. Adapted from reference 3.

2.1.2 Since there are strong connections among components of the SC itself, the effect of a SC disruption will have differing levels of impact on each element of the SC4. If the interruption cannot be addressed immediately, it will lead to some malfunctions of manufacturing activities. Interruptions take place at the first two stages of the chain will eventually affect the distribution function (example in appendix D).

2.1.3 To demonstrate how pricing strategies are affected by supply disruption, three elements that influence that pricing decision need to be considered: marketing positioning, customer value
3

Paul R. Kleindorfer Germaine H. Saad, Managing Disruption Risks In SCs, Poms Production And Operations Management, Vol. 14, No. 1, Spring 2005, Pp. 5368 J.L. Gattorna and D. W. Walters (1996), Managing the SC: A Strategic Perspective, MacMillan Press Ltd, England Page 6 of 30

and competitor behaviour5. Firstly, the market position of the manufacturer who suffers from the disruption risk will change due to the loss of market share and inventory. Secondly, the economic value to customer (EVC) of the manufacturers product might be reduced due to attacks of competitors. As a whole, the pricing strategy of the manufacture is influenced because of the disruption of supplier.

Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 Management Accounting and Australian Perspective, 3rd Edition McGraw Hill, Sydney Page 7 of 30

2.2 Information integrity

2.2.1 As e-commerce increasingly becomes a crucial tool for information sharing and SC integration a major problem for any organizations is the risk that information becomes, inaccurate, incomplete and unsynchronised.6 (See appendix A & B)

2.2.2 Betts (2001) demonstrates the problem through the various ways in which a particular supplier or customer such as IBM can be entered into a SC software as either:

IBM Corp I.B.M Corporation, or International Business Machines Corp.

Whilst a difference in a name seems trivial, this diversity will project false information in identifying the volume and value of doing business with IBM7.

2.2.3 Incomplete and unsynchronised information can arise from the different data formats operating under different information systems within the SC8. In information sharing SC networks, when corrupt or false information generated from one part of the SC is passed along the SC all entities will be affected both internally and externally9.

2.2.4 La Londe (2003) argues that the lack of accurate or standard information adversely affects costing data, a crucial element for establishing a competitive pricing strategy10. Consequently, decision would be based on false measurements regarding:
Poor data management had cost global businesses more than $1.4 billion per year in billing, accounting and inventory disorder, according to a survey by PricewaterhouseCoopers (Betts, 2001).
7 6

Betts, B. (2001) Dirty Data, Computerworld, Vol 35, Issue 51 Humayun, B. (2004) Web Services Yield Simply E-commerce Information week, Issue 1013 CMP Media

Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 Management Accounting and Australian Perspective, 3rd Edition McGraw Hill, Sydney La Londe, B.J. (2003) SC Management Review, Reed Elsevier Inc Page 8 of 30

10

A products resource consumption; The effectiveness of deployed capital; The economic contributions of entities within the SC

In the case of inconsistent information such as the IBM example, the organisation will be unable to determine the correct value of business conducted with its suppliers and customers ultimately limiting its capacity to negotiating favourable trading deals or volume discounts11. Consequently, organisations using substandard information results in sub-optimal pricing strategies, diminishing competitive advantage and lower market share.

11

Betts, B. (2001) Dirty Data, Computerworld, Vol 35, Issue 51 Page 9 of 30

2.3 Planning supply and demand

2.3.1 Forecasting and adapting to changes in demand and supply is applicable to the entire SC affecting upstream, manufacturing and downstream processes and arises from factors within and external to the organisation.

2.3.2 Manufacturing firms are often departmentalised into functional silos resulting in a lack of collaboration, information flows and accountability among internal functions which in turn distorts effective decision making. The result is material and product shortages, excessive onhand inventories, lack of labour utilisation and on-time delivery issues12.

2.3.3 Externally, lack of SC agility affects the ability of firms to respond rapidly to unpredictable changes in demand and supply. SC agility has two aspects visibility and velocity, both of which prevent the firm from gauging the demand for its products which in turn manifests errors in forecasting supply of raw materials 13.

Most manufacturers that fail to achieve sufficient visibility dont have a clear view of upstream, production and downstream inventories not only because of the lack of internal communications mentioned above, but also a lack of integration between suppliers and customers. Firms lack velocity due to an inability to quickly move goods from one end of the SC to another either because of long in-bound lead times or non-value adding processes. Global outsourcing might lead to increased length and complexity; in other words, process inefficiency, of the SC itself especially because of political instability in different countries at different periods 14. These issues are becoming increasingly apparent with the outsourcing of manufacturing to low cost countries such as China thus increasing lead times for manufacturers and their customers15.
Peck H., Martin C (2004), Building the Resilient SC, The International Journal of Logistics Management /Volume 15 No.2 2004 pg 1-11. Peck H., Martin C (2004), Building the Resilient SC, The International Journal of Logistics Management /Volume 15 No.2 2004 pg 1-11 14 Robb, S. P., A. Bailey. 2003. Risky Business: Corruption, Fraud, Terrorism & Other Threats to Global Business, Revised edition. Kogan Page Ltd., London, United Kingdom
15 13 12

Dalziel A. (2005), Gartner Advice on Global SC Management, Intentia Headlines, No 2. 2005, pgs 4-6. Page 10 of 30

2.3.4 The lack of visibility and velocity results in the bullwhip effect. Even a small amount of unplanned demand from any one customer oscillates back through the SC often resulting in costly disturbances to manufacturers who need to quickly acquire and process more raw materials and reschedule production which negatively resounds on business performance through excess inventories, overtime expenses and shipping costs 16,17.

2.3.5 Manufacturers may not be able to pass on costs to customers due to contractual obligations and those who do pass on the incremental cost of additional production may face the opportunity cost of losing the customer. This scenario may force firms into market-based pricing, often at a sacrifice of their income18 .

Donovan R.M. (2005), SC Management: Cracking the Bullwhip Effect Part 3, Available: www.edm1.com/donovan.pdf
17

16

Management consultant RM Donovan indicates that a common complaint by many manufacturers is that of unknown sale promotions by their customers which ripple through the SC with the costs of additional production being borne by the manufacturer.

18

Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 Management Accounting and Australian Perspective, 3rd Edition McGraw Hill, Sydney Page 11 of 30

2.4 Compliance and regulation

2.4.1 The imposition of regulatory standards on manufacturing firms limit their flexibility and dynamism (appendix H). Lax screening of these regulations on a regular basis is often at the root of the problem which often causes companies to be accused of breaches of ethical trading practices when doing business19. 2.4.2 All activities in the SC are subject to regulation such as environmental and quality standards, labour and consumer laws. For example, regulation pertaining to waste reduction initiatives requires the SC to incorporate a reverse logistics component to accept used products for recycling. Furthermore restrictions on certain materials usage for production will pressure manufacturers to establish new manufacturing processes which can result in major changes to the timing and resource usage of production goods. Litigation due to non-compliance of these rules not only influences on a particular party but also attacks the entire SC competitive asset i.e. reputation20. 2.4.3 Legal setbacks can largely affect customers perceptions of the economic value of the product or service. As a result, firms need to put more effort to certify the economic value to the customers (EVC) which mainly affects the pricing strategy of the firm21. Manufacturers and their constituents within the SC must now incorporate the costs of complying with extended regulatory activities and procedures in to the cost of their products (appendix 2). Furthermore the risk of litigation puts additional weighting on contingent liability accounts. 2.4.4 Protivitis survey found deficiencies in post-contract management and in the implementation of regulations such as the Sarbanes-Oxley Act in the US22, (see appendix E).
Ian Gilchrist, View Point: Beyond Compliance; Social Accountability Can Protect Companies And Profits, Asiaweek, Hong Kong, Apr 13, 2001. pg. 1
20 19

Ian Gilchrist, View Point: Beyond Compliance; Social Accountability Can Protect Companies And Profits, Asiaweek, Hong Kong, Apr 13, 2001. pg. 1 Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 Management Accounting and Australian Perspective, 3rd Edition McGraw Hill, Sydney OKeeffe, P. (2004) Understanding SC Risk Areas, Solutions, and Plans, A Five Part Series, Protiviti Integrated Risk Consulting Page 12 of 30

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3.0 Solutions and social context evaluation

3.1 Reducing supply disruption risk

3.1.1 It is suggested to engage with several suppliers of critical materials and embrace global outsourcing in order to mitigate supply disruption risk23. This methodology implies the chain can never be significantly disrupted if the major supplier is no longer eligible to be part of the chain and enables flexibility for manufacturers to obtain resources worldwide rather than relying on domestic supplier1.

However, a larger number of contracts with multiple suppliers might lead to a higher level of inventory24. This solution might not be desirable for those firms with low inventory turnover since stocking a large quantity of inventory exposes companies to a higher level of inventory cycling and obsolescence risk. Manufacturers can avoid these negative outcomes by having a lead supplier and keeping other sources available or single source by each product manufactured.

3.1.2 While ethically questionable, Suppliers can exert bargaining power over single-supplier manufacturers by threatening to raise prices or reduce the quality of purchased products. Powerful suppliers can thereby squeeze profitability out of an industry unable to recover cost increases in its own prices25. In addition to the issues with global outsourcing discussed in section 2.3.3, manufacturers may also contract and thus support unscrupulous suppliers with abysmal employee safety and environment records. Thus risk mitigation comes at a social cost, especially in low cost countries such as China where a PwC survey revealed that employees face barriers to freedom of association, insufficient wages and compensation, excessive working hours and poor health and safety standards.26

23

C. F. Ho, Y. P. Chi, and Y. M. Tai (2005), A Structural Approach to Measuring Uncertainty In Supply Chain, International Journal of Electronic Commerce / Spring 2005, Vol. 9, No. 3, pp. 91114.

24

Certain suppliers may invoke contractual obligations that require manufactures to continuously maintain certain levels of inventory

25 Dowlatshahi, Shad 11934250)

26

Production & Inventory Management Journal, 1999 1st Quarter, Vol. 40 Issue 1, p27-35, 9p; (AN

Fabian T. Hill C. (2005) CSR & The Ethical Supply Chain, PricewaterhouseCoopers UK LLP Page 13 of 30

3.2 Information integrity management

3.2.1 Betts (2001) argues that standardising data by establishing business rules regarding the semantics of data will eliminate the diverse methods of conveying information27. Standardisation provides an economical and effective method of ensuring that information exchanged within the SC is communicated with consistency. It also creates a prevention mechanism for misinterpreting information and can identify when data is entered incorrectly28.

3.2.2 Embracement of new technology enables automation to SC activities and eliminates the need for manual processes. New technology such as radio frequency identification or (RFID) tags, display terminals and wireless web technology can decrease the probability of inaccurate information caused by human error and enhance information integrity (see appendix C). Recognising the vital role that technology plays in SC management is E-manufacturing. Emanufacturing is a technology orientated ideology that aims for complete integration between the manufacturing operations and the functional objectives of the enterprise.29,30

3.2.3 Macintosh (1985) points out that mechanisms such as standardising business rules, installing new technology and committing to regulate information integrity can lead to organisational inefficiencies. That is, from a human relations perspective, information systems and control mechanisms are viewed as an oppressive tool used by upper management to

27 The below points provides examples of the many ways in which the same type of information can be communicated: Pants, slacks or trousers 06-03-2001 as June 3 or March 6 Invoice Date referring to the date the supplier put on the invoice, or the date the invoice was received?
28

Betts, B. (2001) Dirty Data, Computerworld, Vol 35, Issue 51

29

Lee, J (2003) E-Manufacturing fundamental, tools and transformation, Robotics and Computer Integrated Manufacturing Issue 19, pp 501 -507 E-manufacturing addresses the problems of incomplete and unsynchronised information by promoting the development of a single information system that provides the platform for synchronising manufacturing systems and e-business systems including Customer relation management (CRM), SC Management, (SCM), Business-2-Business (B-2-B) and e-Commerce systems such as EDI. Page 14 of 30

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relentlessly and unilaterally drive up unrealistic production goals and furthermore used as an unfair means of evaluating performance.31 Whilst strategies such as participation of all stakeholders in the decision and implementation of new processes has provided some respite to the conflict, studies have shown participation leads to productive inefficiency caused through organisational slack.32 Furthermore, La Londe (2003) argues that two major barriers to information integration (achieved through the embracement of technology)33 as: 1. The cultural bias toward current system and processes caused by IT illiteracy and acting an impediment for choosing the next information system. 2. The prevailing management style that uses information as power, postulating that for most traditional managers the last item on their agenda would be for integrated information system that dissipates their power inside and outside of the company. Similarly Koch (2002) warns that embracing new technology changes the way people do their jobs. The biggest mistake firms make is assuming that changing peoples habits is trouble-free and therefore when the SC entities are resistant to change failures are likely to occur 34,35 .

31

Macintosh, N. (1985) The Social software of Accounting & Information Systems Chapter 3 pp25-40, John Wiley & Sons, London This means that organisational slack can result in line managers opting for higher allowances for data error than what in reality can be achieved La Londe, B.J. (2003) SC Management Review, Reed Elsevier Inc

32

33

Koch, C. (2002) The ABCs of ERP, CXO Media Inc. Available: http://www.cio.com/research/erp/edit/erpbasics.html

34

35

A recent Deloitte Consulting survey of 64 Fortune 500 companies, 25 percent reported a drop in performance when their ERP system went live. The major contributing factor to the performance problems was that people could not do their jobs in the familiar way and had not yet mastered the new way, consequently they panic and the business goes into spasms.

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3.3 Improving supply and demand planning 3.3.1 To breakdown the functional silo mentality examined in Section 2.3.2 requires organisational leadership from senior management who must drive teamwork, collaboration and a culture of shared risk management.36

Figure 3: The diagram depicts the planning process and the role of senior management. Adapted from reference #35. 35.

Sales, marketing, finance, supply, and operations must work closely to integrate plans, recognize risks, and present recommendations to senior management who then make decisions. Policy and process translate these decisions to specific actions and schedules37. 3.3.2 One way to eradicate problems in relation to SC agility is through SC and value reengineering. The process of SC re-engineering requires a manufacturer to gain an understanding of SC bottlenecks and critical paths from which it can formulate a strategy to redesign the SC. Methods to address are supply sourcing, already discussed in section 3.1.1, efficiency vs. redundancy trade-off38 and multi-enterprise collaboration through the use of IT to improve the exchange of information amongst suppliers and customers thus improving SC visibility39.
36

OKeeffe, P. (2004) Understanding SC Risk Areas, Solutions, and Plans, A Five Part Series, Protiviti Integrated Risk Consulting

Peck H., Martin C (2004), Building the Resilient SC, The International Journal of Logistics Management /Volume 15 No.2 2004 pg 1-11 The trade-off implies that even if excess production capacity is redundant it allows the firm to be more efficient in coping with demand surges and avoiding the swings as suggested by the bullwhip effect. 39 Peck H., Martin C (2004), Building the Resilient SC, The International Journal of Logistics Management /Volume 15 No.2 2004 pg 1-11 Page 16 of 30
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3.3.3 While these solutions are effective, their feasibility may be questioned when viewed in a social context. Senior management participation, teamwork and SC re-engineering require changes in the culture of an organisation. Employees who are comfortable in their job may resist the culture change which would cause tension between staff and management, and stress to employees which in turn would be detrimental to the effectiveness and efficiency of the organisation. The establishment of multi-enterprise collaboration and I.T. solutions may result in structural unemployment amongst lowly-skilled workers who are not willing and are not able to adapt to the new technologies. The loss of jobs will understandably have negative consequences on the staff affected, but the organisation will also suffer by losing the SC knowledge that these employees held40.

40

Jackson, McIver (2001), Macroeconomics, 6th Edition, McGraw Hill Companies, Australia Page 17 of 30

3.4 Strategies for regulatory compliance 3.4.1 Regulations are either complied with or violated. This paper does not divulge nor promote the use of unlawful practices that depart from the conditions set in the relevant legislation however, Gilchrist (2001) suggest the following strategies can help manufacturers to better cope with the regulations and avoid breaches in trading practices (example in appendix H):

Ensure employees and partners have a legitimate and creditable history Conduct preliminary assessments of facilities to ensure integrity of security, safety measures and waste management procedures. Clarify expectations to suppliers through contractual obligations to comply with your standards. Monitor progress and revise risk minimising goals continually Form strategic alliances to lobby against impracticably stringent laws

The implementation of such a SC risk management culture entail increased dialogs with consumers, employee empowerment and to raise the level of communications among parties regarding the corporate social responsibilities such as environment, health of employee and work safety issues assist in engendering a greater level of compliance control throughout the entire organisation and among interactive parties. It also assists total quality management through the empowerment of employees and an emphasis on the smooth flow of activity41.

To complement theses actions manufactures can also undertake to acquire ISO 4001 accreditation which recognises that the organization has met the International Standards Organisation for monitoring, environmental or employment practices.

3.4.2 Advocates of employee empowerment suggest that employees who have a stake of the entity would have a long-term view and generate high productivity and other gains to the SC. However, a paper released by the US National Bureau of Statistics in April, 2005 found that such

41

Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 Management Accounting and Australian Perspective, 3rd Edition McGraw Hill, Sydney Page 18 of 30

change of corporate governance led to an opposite effect42. Employee shareholders indeed tended to take less risky and less long-term investments to secure their jobs and their day-to-day concerns dwarfed the prosperity of the SC. This builds upon the concept of organisational slack discussed in section 3.2.3. Lobbying governments may compromise environmental responsibility of firms and give rise to bribery and corruption.

42

Mary Kwak(2005), MIT Sloan Management Review: Is Employee Ownership Counterproductive? Cambridge: Summer 2005. Vol. 46, Iss. 4; p. 8 Page 19 of 30

4.0 Conclusion & Recommendations

The continuing pursuit to an efficient and effective SC is not without its set-backs and obstacles. As illustrated in Figure 4, there are a range of problems and corresponding solutions presented

Supply Disruption Several suppliers Global outsourcing Standardisation of information format Embracement of new technology Organisational leadership SC and value re-engineering Multi-enterprise collaboration Contract management Risk management culture

Information Planning supply Regulatory and demand Compliance integrity

The table conclusively suggests that adoption of information technology and implementation of a risk management culture are universal solutions to the problems outlined. This is not to discount the value added from other solutions but serves as to which solutions most critically require implementation in contemporary supply chain management.

Before accepting such solutions an astute SC manager should heed the social ramifications which each solution presents. The matter of bargaining power wielded by large suppliers over smaller participants can breed conflicts of interest within the SC and disengage entities from working towards a unified goal. Moreover the conflict between the human relation schools and management accounting regarding whether control mechanisms play a productive role within the organisations still remains unresolved. In addition, global outsourcing solutions breed process inefficiency through extended lead-times. Ultimately, as entities within an integrated SC are unique and different no one solution will provide a panacea to the problems in SC management. The SC manager must therefore use sound judgement in deciding which solution will best suite both the organisation and the SC itself.

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References
Betts, B. (2001) Dirty Data, Computerworld, Vol 35, Issue 51 C. F. Ho, Y. P. Chi, and Y. M. Tai (2005), A Structural Approach to Measuring Uncertainty in Supply chains, International Journal of Electronic Commerce / Spring 2005, Vol. 9, No. 3, pp. 91114. Companies Report Widespread, costly asset tracking problems Frontline solutions; Oct 2001; 2,11, ABI/INFORM Global Pg.10 Source: Australian, The, OCT 04, 2005 Dalziel A. (2005), Gartner Advice on Global SC Management, Intentia Headlines, No 2. 2005, pgs 4-6. Donovan R.M. (2005), SC Management: Cracking the Bullwhip Effect Part 3, Available: www.edm1.com/donovan.pdf Dowlatshahi, Shad, Production & Inventory Management Journal, 1999 1st Quarter, Vol. 40 Issue 1, p27-35, 9p; (AN 11934250) Fabian T. Hill C. (2005) CSR & The Ethical Supply Chain, PricewaterhouseCoopers UK LLP

Gopal, G. McMillan, E. Synchronisation: A cure for Bad Data Innovation New ways of SC Management Review May/June 2005 Humayun, B. (2004) Web Services Yield Simply E-commerce Information week, Issue 1013 CMP Media Jackson, McIver (2001), Macroeconomics, 6th Edition, McGraw Hill Companies, Australia J.L. Gattorna and D. W. Walters (1996), Managing the SC: A Strategic Perspective, MacMillan Press Ltd, England Koch, C. (2002) The ABCs of ERP, http://www.cio.com/research/erp/edit/erpbasics.html CXO Media Inc. Available:

Logistics Advertising Report (2005), International Logistics: Katrinas Challenge, Australian Sep 26, 2005, p6

The

Macintosh, N. (1985) The Social software of Accounting & Information Systems Chapter 3 pp25-40, John Wiley & Sons, London Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 Management Accounting and Australian Perspective, 3rd Edition McGraw Hill, Sydney
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La Londe, B.J. (2003) SC Management Review, Reed Elsevier Inc Lee, J (2003) E-Manufacturing fundamental, tools and transformation, Robotics and Computer Integrated Manufacturing Issue 19, pp 501 -507 OKeeffe, P. (2004) Understanding Supply Chain Risk Areas, Solutions, and Plans, A Five Part Series, Protiviti Integrated Risk Consulting Paul R. Kleindorfer Germaine H. Saad, Managing Disruption Risks In SCs, Poms Production And Operations Management, Vol. 14, No. 1, Spring 2005, Pp. 5368 Peck H., Martin C (2004), Building the Resilient Supply Chain, The International Journal of Logistics Management /Volume 15 No.2 2004 pg 1-11 Robb, S. P., A. Bailey. 2003. Risky Business: Corruption, Fraud, Terrorism & Other Threats to Global Business, Revised edition. Kogan Page Ltd., London, United Kingdom Slack N, Chamber S, Harland C, Harrison A, Johnston R 1998 Operations Management 2nd Edition Pitman Publishing Wright C. (2005), Sarbanes-Oxley silver lining: compliance leads to risk management, Boston-Herald,1 October, Available: http://business.bostonherald.com/womensBusiness/view.bg?articleid=104472

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Appendix
A) Asset Management hampered by manual processes, inaccurate data Survey by WhereNet: Real-time locating system (RTLS) Vendor of 146 operations managers, engineers and IT executives 10% of respondents indicate their companies write off a half million dollars in annual losses as a result of lost assets or inventory 59% of respondents reported their companies spend up to $25,000 a year, in man-hours alone, searching for lost assets 60% of respondents said that companies spend up to $50,000 annually over provisioning inventory and equipment as part of their standard operational for manufacturing process 49% of respondents consider the lack of connectivity between their inventory / assets and the people and information systems that manage those assets as the most significant barrier to streamlining their SC

Source: Frontline Companies Report Widespread, costly asset tracking problems Frontline solutions; Oct 2001; 2, 11, ABI/INFORM Global Pg.10

B) According to a report prepared for the grocery industry by consultants A.T. Kearney, bad data leads to a host of problems: Companies lose approximately $40 billion, or, -3.5 percent of sales, each year because of SC information inefficiencies. Nearly 30 percent of item data in catalogues used by retailers and manufacturers is incorrect. Correcting those errors costs between $60 and $80 each. Companies spend an average of 25 minutes per SKU per year manually cleansing out-outsync item information. Nearly 60 percent of" all invoices generated have errors each invoice error costs $40 to $400 to reconcile. Forty-three percent of all invoices result in some form of deduction New product rollouts take an average of four weeksin large part because of the inefficient and error- prone approaches for exchanging and updating the new item's information in the buyer and seller systems.

Source: Gopal. G, McMillan. E Synchronisation: A cure for Bad Data Innovations: New ways of SC Management Review May/June 2005
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C). Cool Tags help Trucking Company Radio Frequency Identification (RFID) benefits the SC by allowing items to be identified and tracked throughout the entire SC in real time. RFID consists of devices which transmits and receive data (in the form of radio waves) and is usually attached to containers containing the goods. The technology enables the capture and analysis of information without employees required to manually type the data. In addition to identifying and tracking goods, RFID also allows provides information on the state or condition of the goods within the SC. Scotts Transport, one of Australia's leading refrigerated transport companies, delivers perishable goods to customers such as Kraft, Primo Smallgoods and National Foods. By the end of 2005, 30 RFID-based temperature monitoring systems, developed by Australian company Exago will be installed onto their fleet of about 400 vehicles. RFID technology will allow for the temperature inside vans to be monitored and alert all stakeholders from the driver to the customer when suitable temperature levels are breached Source: Australian, The, OCT 04, 2005

D) Example of supplier disruption risk: Hurricane Katrina An extreme example of supplier disruption and its effects on the entire SC can be seen by the recent Hurricane Katrina. Shut down of manufacturing operations (e.g. oil refineries) in affected areas have resulted in supply disruption throughout the USA and the world. Furthermore, upstream and downstream activities, that is, deliveries from and into affected areas have completely stopped due to the damage of infrastructure. As a result, costly and timely reconstructions have to be made to restore the usual production capacity Source: Logistics Advertising Report, International Logistics: Katrinas Challenge, The Australia Sep 26, 2005, and p6

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E) The Sarbanes-Oxley Act was enacted in 2002 in the US as part of the efforts to help restore investor confidence in the integrity of financial reporting. Section 404 of the Act enforces companies to understand and quantify risk within the SC and introduce controls to mitigate it, however, the problems arises with operations personnel which are often unable to appreciate the direct financial linkages of their day-to day activities. Another barrier is that implementation is an expensive and time-consuming process43. Internal controls as required by the Act are not limited to the set of controls that govern accounting processes. Rather, they are full set of controls that relate to all components of the SC. The table on the right shows the linkages between SC activities and the accounting areas upon which it impacts44. Figure 1 indicates the number of control points needed throughout the organisation which help mitigate risk. However, a lack of control points will result in inaccurate costing data which in turn will hide non-value adding processes, decrease the firms ability to benchmark against competitors and increase uncertainty in applying a costbased pricing strategy.
Areas in the SC Raw materials purchased Purchase of equipment Direct and indirect materials and services Area affectedbalance sheet Raw materials Accounts payable Cash and debt Plant and equipment Accounts payable Cash and debt Plant and equipment Accounts payable Cash and debt Raw materials Work in process Accounts payable Accrued expenses Wages payable Cash RM, WIP, FG Accounts Payable Accrued expenses Wages payable Cash Area affected income statement

Cost of Sales Depreciation Taxes Cost of Sales Wages Utilities

Conversion of raw materials i.e. manufacturing Storage of raw materials, work in process or finished goods

Cost of Sales Wages Utilities

Cost of Sales Wages Utilities Revenue Cost of sales Taxes Intercompany

Sale to customer or subsidiary

WIP Inventory FG Inventory

Figure 1: adapted from reference #17

Wright C. (2005), Sarbanes-Oxley silver lining: compliance leads to risk management, Boston-Herald, 1 October, Available: http://business.bostonherald.com/womensBusiness/view.bg?articleid=104472
44

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OKeeffe, P. (2004) Understanding SC Risk Areas, Solutions, and Plans, A Five Part Series, Protiviti Integrated Risk Consulting Page 25 of 30

F) One of the most common and less well-controlled weaknesses occurs generally after the

contract has been awarded. Even where manufacturers are able to establish a strong discipline in sourcing, supplier selection, and contract negotiation in the purchasing and procurement phases of the SC and are thus able to gain solid contracts with preferred suppliers, there is a tendency to give inadequate attention to evaluate the ongoing performance, service and value delivery, and contract compliance. Without monitoring, measuring, and controlling supplies, the manufacturer is unable to identify quality and quantity shortcomings which may lead to supply interruption further down the SC 15. G) For example, suppose a customer order is electronically transmitted to the sales department through an Electronic Data Interface (EDI), the order is for 20 units which EDI sends as 2 separate digits i.e. 2 and 0. This information is then passed on to the manufacturing department in an XML format via the companys ERP system however the unit order field which is character sensitive consists of 3 digits. Consequently this blank field may automatically be assigned a value of zero which would then be display as 200. H) McDonald's and Disney - two of the world's most valuable and popular brands - were recently accused of using suppliers in mainland China that breached labour regulations. Not only do such situations cause concern regarding potential and actual damage to the environment, workers or communities, they also pose a serious threat to corporate brand reputations and to companies' bottom lines. Source: Gilchrist, I. (2001) Asia Week: Beyond Compliance; Social accountability can protect companies and profits Financial Times Information Limited Apr 13, 2001 pg1 I) Albright (2005) reports that the European Union (EU) has implemented two directives on electronics manufactures, the first directive, Waste Electric and Electronic Equipment (WEEE) is a recycling directive which will require manufactures to provide a means for consumers to return electronics waste free. The second directive, Reduction of Hazardous Substances (RoHS) requires manufactures to limit the amount of hazardous materials (lead, mercury, cadmium and some flame retardants) in everything from electronic phones to desktop computers In the case of WEEE, manufactures are required to finance the return of upto75% of all products Albright (2005). .

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