DISTRIBUTION SYSTEMS (Module 2 Case Assignment)

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Module 2 - Case


Case Assignment

Welcome to the second case study for this course. After you have read the materials on the Module 2 Background page, do some additional research on your own and develop a 5-6 page paper discussing the following concepts:

Question: How can concentrated clusters enhance the management of supply chains and improve overall firm performance? How might this management concept vary between international firms and domestic firms? What are the negatives of the concentrated cluster theory?

Assignment Expectations

Submit your assignment for grading by the end of this module. You must have 5-6 pages of written text plus a cover sheet and references page. Use at least 3 different credible sources of information and annotate your sources of information appropriately on your references page and within the text if necessary.You will be assessed on how well you apply your understanding of various location strategies, particularly with respect to the cluster theory. Research the many resources on the internet to make your points and be sure to differentiate between international and domestic situations.

Your paper will be graded using the rubric.

  • There is no set response to the case questions so don’t hesitate to think outside the box.
  • It is essential to provide a well written paper with detailed analysis.
  • Read and Understand Assignment instruction and follow it .
  • READ the information provided by the resources and references on the Reading Material Background page ( see attached). Understand the theory and concept of process management and productivity improvement.
  • The report should be at least 5–6 pages, Double Space, APA Citation
  • Reference needs to be credible sources (Not Wikipedia)
  • Do not Submit Previously submitted Work
  • No Plagiarism (Will use Turnitni.com to check Plagiarism)

Unformatted Attachment Preview

The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-0035.htm Clusters and supply chain management: the Amish experience Tom DeWitt Clusters and supply chain management 289 Marketing Department, Bowling Green State University, Bowling Green, Ohio, USA, and Larry C. Giunipero and Horace L. Melton Department of Marketing, College of Business, Florida State University, Tallahassee, Florida, USA Abstract Purpose – To demonstrate the linkage between Porter’s cluster theory and supply chain management, and provide evidence of their potential joint positive impact on competitiveness and firm performance. Design/methodology/approach – The paper examines the linkage between cluster theory and supply chain management using data from a case study of the Amish furniture industry in Homes County, Ohio, USA. Findings – Using the Amish furniture industry and a representative furniture firm as examples, the paper shows the positive impact of operating within an integrated supply chain in a geographically concentrated cluster. Research limitations/implications – Use of a single case study approach limits the generalizability of the findings; the paper recommends further study of linkages in other industries and locations. Practical implications – The study suggests that firms build competitive advantage by initially focusing primarily on local resources when selecting supply chain partners, rather than looking only for low cost advantage through distant sourcing. Originality/value – This paper adds to the literature on business linkages by proposing an expanded definition of clusters as geographical concentrations of competing supply networks. Keywords Cluster analysis, Supply chain management, Competitive advantage Paper type Case study Introduction Porter (1998) has proposed that today’s economic map of the world is dominated by what he refers to as clusters: geographic concentrations of linked businesses that enjoy unusual competitive success in their field. He suggests that the immediate business environment outside a company plays a vital role in determining how a company creates competitive advantage. When firms operate in one location, the repeated interactions among them boost competition, improve productivity, innovation and coordination, and build trust. Companies operating in a cluster can have the advantage of scale without dealing with the inflexibilities of vertical integration or formal linkages. Cluster theory, in effect, builds on the advantages of interfirm cooperation propounded by supply chain theorists. Supply chain management integrates processes International Journal of Physical Distribution & Logistics Management Vol. 36 No. 4, 2006 pp. 289-308 q Emerald Group Publishing Limited 0960-0035 DOI 10.1108/09600030610672055 IJPDLM 36,4 290 and builds long-term relationships among firms involved in the flow of products and services from the source through to end-users. All firms in the supply chain can benefit through achieving lower costs, improved customer value and satisfaction, and greater competitive advantage (Mentzer et al., 2001). When members of a supply chain all operate in the same general geographic location, they gain the cost efficiencies of supply chain coordination, as well as the boost in competitive drive and innovation that comes from working together in close physical proximity. Managers who are considering relocation of physical facilities or are exploring ways to build competitive advantage in their firm’s present location should understand the linkages between cluster theory and supply chain management. A firm that sources inputs globally to get the best price may be losing out on the advantages of linking with firms in its local area that can provide several other benefits that lower total supply chain costs. This paper illustrates the linkages between supply chain management and Porter’s cluster theory by examining the successful Amish furniture industry in Holmes County, Ohio. Given the strong cultural cohesiveness of the Amish, and their proximity and self-dependency, the context offers a unique viewpoint from which to examine the relative advantage of cluster theory and how this close coupling affects supply chain management practices. Literature review Porter’s cluster framework The globalization of economic activity is changing the nature and location of work, the role of workers, and the prospects for economic development intowns, cities, and provinces or states around the world (Blakely, 2001). In theory, the global marketplace, with its efficiencies in sourcing, transportation, and communication, should have nullified the importance of location in competition. Researchers offer that the computer is at the forefront of this economic mobility, with workers almost anywhere able to compete with one another through the power of the internet with computerized central control systems (Blakely, 2001). Porter (1998) suggests that much of the conventional wisdom about how companies and nations compete needs to be overhauled, as the ease of which firms are able to quickly and efficiently level the playing field has made resources, core competencies, and relationships of key importance in determining a company’s competitive advantage. Research appears to concur with this assertion, as a case has also been made for resource-based innovation (de Gouvea and Kassicieh, 2001). If location matters less, why then is it true that the odds of finding a superior office furniture manufacturer in western Michigan are much higher than anywhere else in the world? The same can be said for other industries, such as the movie industry in Hollywood, and biotechnology and computer industries in the San Francisco Bay area. Porter (1998, p. 78) defines a cluster as a: . . . geographic concentration of interconnected companies and institutions in a particular field. . . critical masses – in one place – of unusual competitive success in particular fields. Clusters are viewed as encompassing an array of linked industries and other entities important to competition that include, for example, suppliers of inputs such as components, machinery, and services. Clusters also extend downstream to channels and customers and laterally to manufacturers of complementary products, and to companies in industries related by skills, technologies, or common inputs (Porter, 1998). Clusters can be seen as exhibiting three broad characteristics: physical proximity, core competencies, and relationships. Enright (1999) makes a clearer distinction in measuring the dimensions of regional clusters by suggesting the following cluster dimensions: geographic scope, density, breadth, depth, activity base, growth potential, competitive position, innovative capacity, industrial organization and coordinating mechanisms. Clusters also present opportunities for an organization to streamline and shorten its supply chain, as these sources exist in a concentrated area. Clusters represent an alternative way of organizing the value chain that can be positioned somewhere between arm’s-length markets on the one hand and hierarchies, or vertical integration, on the other (Porter, 1998). Compared with market transactions among dispersed and random buyers and sellers, the proximity of firms in clusters – and the repeated exchanges between them – fosters communication, coordination, innovation, interdependence and trust. Clusters are seen as affecting competition in three broad ways: (1) increasing the productivity of companies in the area; (2) driving the direction and pace of innovation; and (3) stimulating the formation of new businesses, which expands and strengthens the cluster itself (Porter, 1998). Recent research has extended Porter’s theory to the Indian software industry where clusters are viewed as a way to maintain global competitiveness. In India, software industry clusters provide a means for knowledge transfer, innovation, growth of new organizations, and increased flexibility to compete against cost competitors in China, Philippines and Malaysia (Dayasindu, 2002). Supply chain management While Porter’s model offers a very general macro view, the effectiveness of clusters can be better understood by examining the practices of supply chain management. Clusters can be thought of as geographic concentrations of competing, networked supply chains. A single supply chain is: . . . a set of three or more entities (organizations or individuals) directly involved in the upstream and downstream flows of products, services, finances, and/or information from a source to a customer (Mentzer et al., 2001, p. 4). The supply chain may consist of a company and its immediate supplier and customer (i.e. a direct supply chain), or may extend to all organizations upstream and downstream from the raw material supplier to the ultimate customer (i.e. ultimate supply chain). In addition, supply chains can intertwine with any one company being a part of many supply chains. As an example, IBM is part of a network of supply chains, since it is a customer in one supply chain (for server components), a supplier in another (to CompUSA for laptops), a partner in another (with Linux for software), and a competitor to another chain (Apple for desktop PCs). The chain or network of chains exists whether they are actively managed or not. Supply chain management theory suggests, though, that performance improves for individual firms and the overall Clusters and supply chain management 291 IJPDLM 36,4 292 supply chain when the inter-firm processes and relationships within the chain are actively managed (Mentzer et al., 2001). Supply chain management is: . . . the integration of key business processes from end-user through original suppliers, that provides products, services, and information that add value for customers and other stakeholders (Lambert, 2006, p. 2). Key processes within and between firms are focused on meeting customer requirements. Examples of important processes that are integrated in a supply chain are customer relationship management, customer service management, demand management, order fulfillment, manufacturing flow management, procurement, and product development and commercialization (Mentzer et al., 2001). Supply chain management can also be thought of as the group of activities that bring about the coordinated flow of materials from source to end customer, and ultimately build customer value. According to Mentzer et al. (2001), those activities are: . integrated behavior (i.e. incorporating customers and suppliers); . mutually sharing information; . mutually sharing risks; . cooperation; . firms having the same goal and focus on serving customers; . integration of processes; and . partners building and maintaining long-term relationships. In order to implement the active management of a supply chain, Lambert and Cooper (2000) suggest three steps for a firm to follow: (1) Supply chain network structure. Identify key supply chain members with whom to link processes. (2) Supply chain business processes. Identify the processes that should be linked with key chain members. (3) Supply chain management components. Determine the level of integration and management that should be applied for each process link (e.g. actively manage or only monitor the link). The consequences of integrating processes and implementing supply chain management practices, then, are lower costs, improved customer value and satisfaction and achievement of competitive advantage (Mentzer et al., 2001). Network linkages The literature also identifies other types of informal business linkages that improve performance and competitiveness of participating firms. Harland et al. (2001, p. 22) conducted research to develop a taxonomy of supply networks, which are sets of supply chains nested within interorganizational networks and: . . . consisting of interconnected entities whose primary purpose is the procurement, use, and transformation of resources to provide packages of goods and services. Based on the literature and qualitative and quantitative evidence, they build a model of supply network types. Networks are categorized by the degree of supply network dynamics and the degree of focal firm supply network influence. The combination of those two dimensions yields four types of networks: (1) dynamic/low degree of focal firm influence; (2) dynamic/high degree of focal firm influence; (3) routinized/low degree of focal firm influence; and (4) routinized/high degree of focal firm influence (Table I). Clusters and supply chain management 293 The authors provide practical guidance to managers by identifying the different patterns of networking activity critical for firms operating within each category. For example, managers in categories 1 and 3 often have to cope with network operations which are for the most part out of their control. This categorization clearly provides some insight into the interaction and outcomes of firms operating in a cluster. Another evolving model of linkage between firms is supply chain virtualization, which according to Ho et al. (2003) consists of: (1) formation of virtual (technology-based) trading communities; (2) emergence of virtual knowledge communities; and (3) relocation and integration of inter-organizational business processes from the physical space to cyberspace. Transformation involves building general and specialized information portals, electronic exchanges, and integration of online business processes (e.g. online trade documents processing and product catalogs). Virtualization changes the way business relationships are established, provides new sources of knowledge capital for innovation and product/process improvement, and speeds up the integration of inter-firm business processes. Virtualization offers many of the advantages of clusters without the requirement and benefit of physical proximity. Finally, there is the keiretsu, the Japanese model of business linkage. Keiretsu has been variously defined as “societies of business with interlocking ownership and close buyer-supplier relationships” (Anchordoguy, 1990, p. 58), “clique-like patterns based on intercorporate alliances” (Gerlach, 1992, p. 105), and “vertically integrated groups with a dominant manufacturing firm and a network of major suppliers and Focal firm has low degree of supply network influence Focal firm has high degree of supply network influence Source: Harland et al. (2001) Dynamic supply network Routinized supply network Category 1 Coping with network Compete on product innovation Category 2 Managing network Compete on product innovation Category 3 Coping with network Compete on process innovation Category 4 Managing network Compete on process innovation Table I. A taxonomy of supply networks IJPDLM 36,4 subcontractors” (Presutti, 1992, p. 3). Lai (1999, p. 424) sums up with a richer, more comprehensive definition: Internal control, cohesiveness, policy coordination and symbiotic relationships combine to become a keiretsu linking firms into groups. 294 Keiretsu groups vary by status structure and degree of internal control. Horizontal groups exercise control through overlapping ownership of firms, and vertical groups relate to the value chain with captive suppliers (Page, 1994). Public policy limitations (i.e. restraint of trade rules) make it difficult to consider horizontal keiretsu as a form of business linkage transferable to American firms. But the vertical keiretsu is, in effect, similar to the tightly integrated partnership among members of the supply chain promoted by the supply chain literature. Competitive benefits of clusters Supply chain management is gaining increased acceptance as a tool used by firms to both improve customer service and reduce total costs. Geographic distance adds to supply chain complexity and increases logistical costs in the supply chain. An argument can also be made for the benefits associated with the increased interdependence and mutual commitment that accompanies a cluster and a tightly woven supply chain. Research indicates that relational elements such as a long-term orientation enhance the performance outcomes in buyer-seller relationships (Noordewier et al., 1990; Corsten and Kumar, 2005). More specifically, relationships with greater total interdependence exhibit higher trust, greater commitment, and lower conflict (Kumar et al., 1995), with dependence and trust playing key roles in the determination of the long-term orientation of the relationship (Ganeson, 1994; Doney and Cannon, 1997). Thus, we propose to examine the following two research questions through a study of the Amish furniture industry. First, while it appears that the Amish furniture industry exhibits the key characteristics often associated with a cluster (i.e. physical proximity, core competencies, and relations), will the competitive benefits proposed by Porter be found in an examination of the Amish furniture cluster? P1. There are actual competitive benefits associated with the formation of a cluster. The following list indicates there are many expected benefits from supply chain proximity: (1) Increased productivity: . Improved access to employees and suppliers; . improved access to specialized information; . increased supply chain network support; . access to institutions and public goods; and . easier motivation and measurement of supply chain partners. (2) More focused direction and faster innovation cycles: . innovation visibility through proximity; . enhanced flexibility; and . lower risk of business failures. (3) Stimulating the formation of new businesses: . knowledge of business opportunities; . quicker identification of perceived gaps in products and services; . enhanced local market opportunities; and . shorter feedback loops. Secondly, will the proximity, innovation and business development benefits, as well as, core competency and relational characteristics that exist in clusters impact supply chain management efficiencies? P2. Clusters and supply chain management 295 Cluster characteristics will enable more efficient supply chain management practices (Figure 1). The cluster that provided the focal point for this study is the Amish furniture industry of Holmes County, Ohio. The case study presents their history, economic models, and the Amish furniture industry’s supply chain. Application of Porter’s cluster framework to the Amish furniture industry follows, along with conclusions and managerial implications. In general, the case study research method has been used for exploratory research, when no specific hypotheses are proposed, but a basic understanding is sought of “how” and “why” a social phenomenon occurs (Yin, 1994). The method is most useful when the object of study is a contemporary phenomena occurring in a real-life setting over which the researcher has little control. According to Yin (1994, p. 13): . . . the case study allows an investigation to retain the holistic and meaningful characteristics of real-life events – such as individual life cycles, organizational and managerial processes. . . Use of the case study method to analyze the Amish experience certainly complies with Yin’s criteria for selecting the method. Case study The Amish of Holmes County, Ohio The Amish are an outgrowth of the Anabaptist movement that occurred in sixteenth century Europe. They were looked upon as radicals in the days of Swiss Protestant Reformation, earning the name Anabaptists because they rejected infant baptism. The Relationship of Cluster Characteristics to SCM Practices Cluster Characteristics Physical proximity Core competencies Relationships Supply Chain Management Practices Integrated behavior Mutually sharing information Mutually sharing risks and rewards Cooperation Same goal and same focus on serving ...
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