Analysing Supply Chain Management (SCM) Concepts and Issues in Global Food Retailing Industry

Analysing Supply Chain Management (SCM) Concepts and Issues in Global Food Retailing Industry

Executive Summary

Supply chain management (SCM) is a critical component when measuring both the internal and external success of an organisation. SCM is a comprehensive process that involves effective management continuous flow of goods from manufacturers to consumers. The present study analysed and evaluated different SCM issues in the global food retail industry. The researcher relied on a comprehensive review of various scholarly materials to identify and assess the positive and negative attributes associated with SCM in the global food retail sector. Some of the positive characteristics identified and reviewed included enhancing the speed of information transfer, optimisation of storage space, and the use of multiple suppliers. Additional benefits of SCM included improved sales revenues and profitability, as well as increasing the market share of an organisation and attaining business growth. Negative attributes, on the other hand, included managing short product shelf lives, handling a fragmented supplier base, and responding to changes in customer demand. The researcher also explored and analysed the gaps between evaluation and implementation of supply chain improvement by using the five operational performance objectives model developed by Slack et al. Finally, the researcher analysed different issues associated with the global food retail industry. These issues included gaining tight profits, difficulties in meeting changing consumer expectations, addressing operational inefficiencies, and meeting the existing product quality standards. However, the implementation of new technological applications such as enterprise resource planning (ERP) system, continuous collaboration, and shifting from lean supply chain to agile techniques can provide appropriate strategies to either solve or minimise the impact of these issues.

Key Words: Enterprise resource planning (ERP) system, supply chain management, and operational performance.

Analysing Supply Chain Management (SCM) Concepts and Issues in Global Food Retailing Industry

According to Chinnah (2019), supply chain management (SCM) refers to the strategic management of the continuous flow of goods and services from the manufacturer to the final consumer. SCM also involves the vigorous streamlining of the supply-side activities of a particular business not only to increase customer value but also gain a competitive edge in the industry. Therefore, SCM is a critical element when measuring both the internal and external success of an organisation. Moreover, attaining and sustaining clients, tiered suppliers, and company requirements are vital in achieving business success and sustainability in the contemporary highly competitive global food retail industry (Ganesan, George, Jap, & Palmatier, 2009). The current study analyses various concepts and issues associated with SCM in the global food retail industry. The study offers a critical evaluation of the positive and negative characteristics associated with the global food retail industry concerning SCM while exploring and analysing the gap existing between the review and execution of supply chain improvement (Grant, 2019). Lastly, the study examines the multidimensional supply chain issues in the global food retail industry while applying an appropriate technique to help in either resolving or considerably minimising the supply chain problems within the global food retail industry.

Evaluating Positive and Negative Attributes of SCM in Global Food Retail Industry

According to Raynolds and Bennett (2015), food retailing industry consists of various businesses, such as fast-food chains, supermarket chains, and convenient stores. These companies struggle to meet their desired goals and objectives while satisfying the needs of their target customers (Koech & Ronoh, 2015). There are various positive and negative attributes that firms such as firms experience while managing their supply chains.

Positive Attributes

Enhancing the Speed of Information Transfer

The sharing of information between different stakeholders is a vital process in the success of every food retailing organisation (Chung, 2019). SCM plays a crucial role in improving the speed of transferring information from one stakeholder or department to another. Nestlé, SA, a Swiss-based multinational food and drink and retail firm provides the best example of a company that benefits from the concept of enhanced information transfer between its stakeholders (Fawcett, Magnan, & McCarter, 2008). Nestlé implemented an internal network provided by General Communication Inc. (GCI) to help in coordinating its approach to the development of standards while driving its implementation. GCI operates as a telecommunication firm and bears its headquarters in Anchorage in the state of Alaska, United States (Mbole & Mwangi, 2016). The collaboration between these two organisations is essential for ensuring the effective sharing of information among Nestlé’s business units and stakeholders, as a result of efficient supply chain management.

Optimisation of Storage Space

Effective SCM is essential for helping global food retailers to optimise their storage space (Fawcett et al. 2008). Management of supply chain requires food retailers to use an automated storage approach, which, in turn, helps them utilize their storage space effectively. Also, SCM allows modern food retailers to review their levels of inventory in real-time to ensure that they store all forms of balances with their customer needs (Defee, Randall, & Gibson, 2009). Therefore, effective SCM is crucial in ensuring that food retailers use their storage space efficiently to meet the needs of their customers.

Use of Multiple Suppliers

Chinnah (2019) ascertain that SCM allows global food retail firms to use highly integrated suppliers to achieve operational sustainability. Companies in the food retail industry rely on effective SCM to minimize operational risks, such as spending more money on dead stock or services not required by customers (Rafi-Ul-Shan, Grant, Perry, & Ahmed, 2018). Many firms also rely on SCM to effectively manage its relationship with third-party suppliers (Zhong et al. 2017). SCM allows such firms to have a highly integrated chain of suppliers, which is crucial in maintaining the high-quality standards of their products and promotes sustainable collaboration and communication with stakeholders.

Increasing Sales Revenues, Profitability, and Market Share

Toit and Vlok (2014) found that effective SCM is a critical process towards increasing the revenues and profits of an organisation as well as expanding its market share and attaining growth. For example, SCM allows faster movement of goods from retailers to the final consumers, which, in turn, reduces the costs incurred in storing and managing inventories (Popa, 2012). These reduced costs usually transfer into profits. Also, SCM enables food retailers to use automation and effective process consulting techniques, which help them to reduce the costs associated with employing people to execute different inbound and outbound processes (Broekmeulen & Donselaar, 2019). Thirdly, the use of automated systems in food retailing firms is crucial in reducing errors incurred in inventory management which helps to reduce the costs incurred while correcting such mistakes (Mbole & Mwangi, 2016). Companies tend to achieve increased market share and growth when they use the profits earned through effective SCM to open additional subsidiaries in other market segments (Koech & Ronoh, 2015). This strategic expansion generates more financial gains and helps organisations to attain sustainability.

Negative Attributes

Managing Short Product Shelf Lives

According to Chung (2019), purchasing and selling of perishable goods is the number one challenge facing a plethora of food retailing firms. Some of the highly perishable products sold by global food retailers, such as Aldi, Kroger, and Walmart, include fruits, vegetables, milk, and meats (Grant, 2019). For instance, the management of Kroger Co, one of the leading supermarkets in the United States in terms of revenue, experiences multiple challenges in managing highly-perishable products. The company incurs losses due to expiration of the products alongside a reduction in customer demand (Ganesan et al. 2009). Kroger Co prefers selling perishable products because they generate more profits when compared to the processed ones (Majukwa & Haddud, 2016). However, the company must find new ways to store these products to maintain its profitability.

Handling Fragmented Supplier Base

Sabbaghi and Sabbaghi (2011) averred that a fragmented supplier base results from different conditions that require organisations to develop effective counterstrategies to achieve sustainability. The first cause, over-consolidation pattern, involves giving a lot of attention to one or two suppliers who end up having an oversized amount of spend in a given category (Li, 2017). The second cause, the long-tail pattern, entails having numerous suppliers with minute amounts of spend. The last type, the fragmented model, involves having more suppliers with mid-range prices (Raynolds & Bennett, 2015). These three factors may affect by the organisation by scaring away potential suppliers and, in turn, leading to inventory shortages.

Responding to Changes in Customer Demand

Changes in customer needs and preferences are increasingly becoming a significant issue to address among numerous firms operating in the global food retail industry (Melnyk, Narasimhan, & DeCampos, 2014, p. 1889). Customers are increasingly demanding for healthy products and shifting from processed foods with high sugar and salt content to avoid the burden of chronic diseases, such as diabetes and cancer (Ganesan et al. 2009). This change in demand puts pressure on food retailers to shift their focus from selling high-profit, generating products to healthy ones, which are challenging to produce, transport, handle, and keep (Broekmeulen & Donselaar, 2019). Such products are highly perishable and may expire while in stores.

Analysing Gaps between Evaluation and Implementation of SCM Improvement

Many food retailing organisations face numerous difficulties while trying to address an apparent limitation in their supply chains. However, the five operational performance objectives model developed by Slack, Brandon-Jones, and Johnston (2013) can play a vital role in exploring and analysing the gap between evaluation and implementation of supply chain improvement. The first operational objective, cost, refers to the inherent capacity of an organisation to produce its goods and services at a low price (Zhong et al. 2017). Food retailing firms use the cost objective to determine and set the prices of their products. However, a gap exists when it comes to implementing the results gathered from the evaluation process because many food retailing companies fail to understand that products that exist in different varieties generate volumes and higher unit costs (Sabbagh & Sabbaghi, 2011). As a result, this phenomenon affects the overall price of the product, its production costs, and the profits gained.

The second operational objective, speed, refers to the ability to execute different SCM processes quickly in response to consumer demand. Speed is crucial in providing shorter lead times between the moment customers order for products and services and their reception time (Min et al. 2019). During the evaluation process, many companies find it critical to reduce the time spent on manufacturing products and delivering them to the final consumer. However, a gap often arises between this evaluation and implementation because companies face multiple challenges when trying to reduce the time taken to deliver their products to the customer. For instance, operational failure due to using outdated machines may cause delays (Zailani, 2015). The third objective, quality, is the ability to produce a product by the existing standards and without errors (Slack et al. 2013). During the evaluation, companies tend to identify and develop new strategies that can help in producing high-quality products. Contrariwise, many organisations find it challenging to produce and sell the right quality of products because of various factors due to changes in consumer expectations that may render the new product useless even if it meets the quality standards followed during its production (Pozo, Silva, Tachizawa, & Liu, 2017). Inadequate personnel and lack of competence in terms of skills, knowledge, and experienced needed in producing the product may also affect its quality during implementation.

The fourth objective, flexibility, entails the ability to undertake appropriate changes to meet the evolving customer needs (Lotfi, Mukhtar, Sahran, & Zadeh, 2013). Food retail companies also put into consideration the need to attain flexibility during their evaluation process but may create a gap during implementation as a result of various factors. For example, such food retailers may fail to change the volume of the product and the time taken to produce it. Also, companies get challenging to improve a variety of products or services offered and may fail to not only create but also bring new products and services in the market (Li, 20177). Lastly, the operational objective of dependability refers to the capacity to deliver products and services in adherence to the promises made to the customer (Zhong et al. 2017). Food retailers use different approaches, including quotations and publications, during the evaluation process, to process high-quality products. However, a gap exists during implementation because most of them do not adequately understand the needs of their customers and may also try to use shortcuts to reduce the production costs and, in turn, realize more profits (Melnyk et al. 2014). In such cases, the final products do not match the needs of the target customer.

According to Toit and Vlok (2014), Tesco, Plc, which is a British international groceries and general merchandise retailer, provides the best example of a company uses Slack et al. (2013) five operational performance objectives model to attain sustainability. The company considers the quality and the costs of its products as the first order qualifiers. The speed at which Tesco delivers its products to the target customer and its flexibility, in increasing or decreasing, its output to meet customer demand serves as the main order winners in the company. The multinational groceries retailing firm demonstrates an outstanding commitment towards improving the quality of its products while emphasizing on the need to maintain the freshness of its food products, regardless of being perishable (Johnson & Holmstrom, 2016). Tesco does proper observation when choosing its suppliers and when determining the time that food products stay in its warehouses.

According to Jones and Robinson (2012), Tesco checks the expiry dates of its products regularly with the use of its dealer system, which also helps in supervising their quality standards. Also, the British food retailing firm maintains the cost of its groceries at lower levels than its rivals to gain a competitive edge over them. Tesco also prioritizes on the speed of delivering its products to the final consumer to meet their demand and expectations. The company has a unique online service that ensures continuous availability and accessibility of its products by customers regardless of their geographic locations (Min, Zacharia, & Smith, 2019). The speed at which Tesco delivers its products to consumers explains why it not only gains more customers but also retains the existing ones. Tesco uses its internally developed analytics system to attain flexibility by bringing notable improvements in its supply chain. The system forecasts the purchasing behaviour of Tesco’s customers to help the organisation store and display products that align with their demands and expectations. Tesco also cooperates with various suppliers to ensure that customers find all the items they need in the strategically located physical stores as a way of attaining the objective of dependability (Jones & Robinson, 2012). Lastly, the company operates the Tesco Extra, which works on a 24-hour schedule to increase reliability.

Strategies for Solving and Minimising SCM Issues in Global Food Retail Industry

Analysing SCM Issues in the Global Food Retail Industry

Conteh and Akhtar (2015) identified five different multidimensional SCM issues in the global food retail industry that managers must address. The first issue entails gaining small profit margins. Many food retailers record lower profits because most of their customers are highly sensitive to prices. Also, the invention of online shopping enables consumers to compare prices across different food retailers before buying a product. Therefore, food retailers must lower the costs of their items to increase the probability of selling them to price-sensitive clients (Pozo et al. 2017). Lastly, low profits are as a result of an increase in the cost of raw materials, operational costs, such as labour, and overheads. Secondly, retailers are finding it challenging to meet the changing demand and expectations of customers. Modern consumers are increasingly insisting on the need to get high-quality products at the lowest prices possible (Melnyk et al. 2014). Customers can also use multiple channels to find cheap but healthy products, which, in turn, put pressure on food retailers to meet their changing demands.

Thirdly, many food retailers suffer from the challenge of operational inefficiency due to a lack of visibility across their critical business departments (Zailani, 2015). Food retailing companies operate in an industry full of information silos across every business unit. Fourthly, meeting the existing product quality standards and complying with different laws and policies applicable to the global food retail industry also presents a significant challenge for food retailing firms. The contemporary quality of a product depends on critical features such as online reviews and customer feedbacks as opposed to the last two to three decades (Lotfi et al. 2013). Today, retail food firms must meet specific criteria and strictly adhere to laws and policies developed by different consumer organisations and governmental agencies to attain quality. Lastly, contemporary food retailers face the challenge of using a single but integrated channel approach to market their products and, in turn, achieving operational sustainability. This strategy is critical in responding to the challenge posed by consumers having numerous platforms to use while doing their shopping (Johnson & Holmstrom, 2016). However, food retailing companies face problems when it comes to maintaining consistency across these channels in terms of providing the same products with high quality and improved customer experience.

Applying Techniques for Minimising and Solving SCM Issues in Global Food Retail Industry

Contemporary organisations in the global food retail industry can put into different application techniques to resolve multiple issues associated with their operations (Conteh & Akhtar, 2015). One significant evidence-based approach to addressing local SCM issues is by utilizing technological applications, such as the enterprise resource planning (ERP) system. ERP refers to the integrated management of diverse business processes and activities, often in real-time and managed by unique software applications. Therefore, ERP is a typical systems applications and products (SAP) software with the ability to create efficiency in the operational function of organisations (Matende & Ogao, 2013). However, organisations must use the most recent ERP versions to attain profitability. Managing the food retail supply chain of companies such as Aldi, Tesco, Amazon, and Walmart on an automated platform provided by latest ERP systems can help in reducing errors, increasing operational efficiency (Muscatello & Chen, 2008), and improving the revenues and profits generated by the organisation.

Another practical approach to resolving SCM issues associated with the global food retail industry is by streamlining operations by building a collaborative supply chain. According to Matende and Ogao (2013), creating an efficient supply chain entails essential processes such as resource optimisation, acceleration of cycle times of various products, reducing inventory, and allowing increased collaboration and communication between stakeholders. Food retail supply chain advancements backed up by the best technological applications can enable companies to connect distinct functions and enable real-time supply chain collaboration (Conteh & Akhtar, 2015). Shifting from the manual processes such as those performed under the lean supply chain to the agile and centralised automated techniques should remain a chief priority for numerous food retailers. Lean supply chain, in this case, refers to various organisations linked directly to upstream and downstream flows of goods and services alongside finances and data that work collaboratively to minimise wastage and costs (Muscatello & Chen, 2008). However, an agile supply chain entails the use of a highly responsible, fast, competent, and flexible supply chain to effectively manage how a chain of supply for a company operates daily.

Walmart, a United States international corporation that also operates in the global food retail industry, provides the best example of an organisation using appropriate technological applications to solve issues in its supply chain. Popa (2012) ascertains that Walmart uses a unique inventory management system referred to as just-in-time cross-docking. This approach helps Walmart to minimise on storage and related costs. The cross-docking technique allows Walmart trucks to meet with those of suppliers besides its warehouses and merchandise distribution centres before exchanging goods. Suppliers usually transfer items from their vehicles to those of Walmart, which, in turn, deliver them to its stores (Zhong, Xu, & Wang, 2017). This approach helps Walmart’s warehouses to minimise on the size of their inventory and resolve associated issues such as meeting evolving customer demand and handling perishable goods. The food retailing firm only stocks the right and highly purchased products while avoiding making orders for items that are dead or out-of-season (Chung, 2019). Also, the cross-docking strategy in SCM of Walmart allows it to quickly deliver goods to their respective stores, which enables it to swiftly respond to changes in consumer demand in its target markets (Raynolds & Bennett, 2015). Therefore, cross-docking enables Walmart to attain operational efficiency and business resilience.

Conclusion

Efficient SCM is a vital component that can help organisations to measure their internal and external success. SCM includes multiple activities that help firms to increase their competitiveness and increase customer satisfaction. Companies with efficiently running supply chains have the advantage of producing high-quality products and quickly delivering them to the target customers at a low cost. Also, retail food businesses that use effective SCM strategies realise multiple benefits that are crucial to attaining operational sustainability and meeting the evolving needs of their target customers. Some of these essential positive attributes include increasing the speed of sharing and transferring information from one department to another, optimising storage space, and the use of integrated suppliers. Effective SCM is also crucial in increasing the sales revenues, profitability, and market share of an organisation, which eventually results in the overall growth of the entire business. However, companies in the global food retail industry face multiple challenges, including meeting changing customer needs and preferences, fragmented supplier base, short product shelf lives, and tight profit margins as they try to achieve their strategic goals. However, the existence of new technological applications such as enterprise resource planning (ERP) systems can help in solving these challenges, as discussed in this research.