Strategic Supply Chain Management Role in company

Executive Summary

The purpose of this is report is to demonstrate the Supervisor regarding the outcomes of recent classes and lectures on logistics Science. The learning effect of the course logistics Science have been applied to make out the postponement strategy of suppliers chain management. The report continues its efforts in response to apply the theoretical and empirical evidences of the postponement. The report has gathered most recent information on postponement strategy including up-to-date data and a large amount developing trends of postponement which would be useful for both couples, academic researches as well as for any business drive lead to online automation. Shell the pioneer of Oil Industry has been produced as an instance.

Introduction

Bowersox, D. Closs, D., and Cooper, M. B. (2002) stated that at this age of globalization companies faced demand for products with a short product lifecycles. To handle such increasing product variety of global customers they need to invest creative brain and improved technology. Reducing production cost of product Anderson, W. (1950) established an approach named “postponement”. Product Price is calculated by its manufacturing costs including time consumed. The word “postponement” has been originated from ‘postpone’ which indicates rescheduling. This approach is made up on the basis of “make-to-stock”.

Bowersox, D. Closs, D., and Cooper, M. B. (2002) also identifies different types of postponement that include-labeling, packaging, assemble, manufacture and time. These include concept of the product with product standardisation where the product should be stored correspondingly. Thus place is one more key factor that supports the production.

Martin, J., and Roth, R. (2008) concentrated on that Postponement is a vital supply chain strategy that include planning the complete supply chains. At the same time it is more leading in terms of product mix in the level of global context. For instance, the difference in preference for domestic appliances such as washing machines, there are differences in likings for top-loading versus front-loading machines, in UK more or less all the machines procured are front loaders when in France eager for top-loading.

Christopher, M. G. (1998) mentioned that in dissimilar cases diverse postponement strategies should be adopted along with diverse costs and benefits. Necessarily postponement is affected by three types of factors that impact on the benefits and costs of postponement. They involved market aspects, process feature and product dynamics including variance of demand, lead time and service requirements etc. are the inner-parts of mentioned postponement factors that make the structure of supply chain management.

Alderson, W. (1950) added implementing a successful postponement strategy a firm can meet up the market requirement and tailor its process. In several cases firms desires to entail further complex process in manufacturing and assemblage of postponement. There are several ways to purchased postponement and cost of each impact on service performance.

Aims and objectives of the research

Postponement is an important supply chain management strategy and this research objective is to know how postponement strategy work, its importance, is it bring benefit for the company, provide an example that follows the postponement strategy and get benefit through it. The aim of this research report is to measure and describe factors that patronize postponement strategy and these factors affected cost of the product in the global market when demand for product is changing. Thus there are lots of confront within supply chain management for put into practice of postponement strategy. How a firm can enjoy competitive advantage through postponement strategy are also foremost themes of this research report.

Plan of the report (Literature search): Postponement

Oracle Corporation, Ernst, C. G. Young and APICS (2003) addressed to reconcile the need of local requirements whilst seeking to organize logistics on a global basis organization would like to achieve the benefits of standardization in terms of cost reduction maximizing their marketing success through localization. Postponement or delayed pattern is based on the principle of using common platforms, components and modules but where the final assembly does not take place until the final market destination is acknowledged.

Anand, K. S., and Mendelson, H. (2007) argued that even if the have a propensity to global brands and products carry on to major local differences in customer and customer necessities within a relatively compact market, there is major differences in customer tastes and of course, languages. Hence there are a large number of markets where standard, global products would not be successful.

Why postponement is a vital SCM strategy

Fred, C.P. M. Sollish et al (2007) explained that the distinguishing characteristics of supply chain is the final product or offer is not created until the last possible moment. The idea is that maximum flexibility would be achieved if there is a postponement in the creation that consists time, place and form utility. The worth of postponement in supply chain strategy is to rise above the disputes of global logistics as well as re-configuration of the value chain in the course of postponement.

Anand, K. S., and Mendelson, H. (2007) affirmed that supervision of global materials network and information streams are not only additional complex than running with the sole purpose national logistics system though the national aspect involves a number of specific and additional contemplation. In terms of implication of postponement strategy in global context there are several factors those are decisively imperative to global supply chains.

Anand, K. S., and Mendelson, H. (2007) also added that in the past, most organizations did little to manage their supply chains. Instead they tended to deliberate on their own operations and immediate suppliers. However, a number of factors make it desirable for business organizations to actively manage their supply chains under postponement strategy as bellow-

1. The need to improve operations: During the last decade many organizations adopted practices such as lean production and total quality management (TQM). As a result they achieved improved quality while wringing of the excess costs out of their systems. Opportunities lie largely with procurement, distribution and logistics of supply chain.
2. Increasing levels of outsourcing: Organizations are increasing their levels of outsourcing that is buying goods or services instead of producing or providing them in house or themselves. As outsourcing increases organizations are spending increasing amounts on supply related activities may be unnecessary.
3. Increasing transportation costs: Transportation costs are increasing and they need to be more carefully managed.
4. Competitive pressures: competitive pressures have led to an increasing number of new products, shorter development cycles and increased demand for customization. And in some industries most notably product life cycles are relatively short and this is implementation of quick rejoinder strategies that workout to diminish the lead times.
5. Escalating globalization has long-drawn-out the physical extent of supply chains. The global supply chain boosts the confronts of supervision a supply chain. Having far-flung customers and or supplier’s means longer lead times and greater opportunities for disruption of deliveries.
6. The increasing importance of e-commerce has added new dimensions to business buying and selling and has presented new challenges.
7. The complication of supply chains: The Supply chains are multifaceted, self-motivated and have many intrinsic reservations those could negatively influence on the supply chain. For instance erroneous forecasts, substandard quality, late deliveries, equipment breakdowns canceled as well as changed orders.
8. The call for deal with inventories: The Inventories occupy a most important role in the accomplishment or breakdown of a supply chain. Thus it is significant to coordinate inventory levels throughout a supply chain. Although very important inventory event that could effect on growing inventory costs and consequently increase in final costs.

The intrinsic worth of postponement strategy in SCM¹ has been articulated as following chart-

How it works

Martin, J., and Roth, R. (2008) addressed that to creating an effective supply chain management requires linking the markets, distribution channels, processing and suppliers. The design of a supply chain should enable all participants in the chain to achieve significant gains, hence giving them an incentive to cooperate. It should make possible for contributor to-

• allocated forecasting
• shaping the category of orders in real time &
• right of entry to the inventory data of allies

Swami Nathan, J. M., & Lee, H. L. (2003) make it clear that a company’s strategy is the fixture plan of management to design a make out of market position, carry out its operations, create a center of attention, and entertain the customers’ needs. It successfully competes and achieves organizational objectives delivered from its mission statement. Postponement in SCM required putting into practice several tasks. In short, these tasks are-

• Designing a strategic vision,
• Organizing objectives,
• Designing a strategy to attain the most wanted outcomes
• Put into practice and carry out adjustments in vision.

Brief descriptions of these tasks has been pointed out as bellow-

Task-I: Designing a strategic vision

The Strategic vision would imitate the aspirations of management for the organization as well as its business. It endows with an alarmed view of ‘where the organization is going ‘what the goal’ and provides a particular guidance about the future business plans as well. It develops long-term business intention to pattern the organizational uniqueness.

Task-II: Organizing objectives

The intention to organizing objectives has been aimed to carry out strategic vision, business mission, and managerial statements in each business drive with targets to realize organizational goals. Managers would be capable to calculate the achievements and organizational progress by locating and forming objectives. Types of objectives are-

1. Financial objectives: The Financial objectives formed with the financial outcomes and achievements for that management is eager gain the outcomes as earnings, healthy cash flow, and escalation, creditworthiness, as well as MVA² appreciation.
2. Non-financial objectives: These objectives seek for result oriented enlarged competitiveness as well as a stronger business positional outcome. Non-financial objectives involved to gaining additional market share, product innovation, go beyond key competitors lying on product quality and customer service. It would effort to gaining inferior overall costs in relation to opponent and substantial competitive advantage. Non-financial objectives would also boost up the organization’s standing by way of customers and engaging a grip in overseas markets, which put into effect on technological leadership and take into custody of smart growth opportunities.

Task-III: Designing a strategy to attain the most wanted outcomes

Designing a strategy to attain the most wanted outcomes convey to engage in recreation with the serious managerial concerns on how to accomplish the beleaguered results with the vision of the organizational state of affairs and prospects. The objectives treated as an ends when the strategies are considered as the means of attaining them. How a company’s strategy could usually mix together are as –

• The intentional and persistent actions,
• The required retort to surprising developments
• The fresh market state of affairs and competitive strain.

Task-IV: Put into practice and carry out adjustments in vision:

The managerial task of implementing and executing the postponement strategy entails assessing what it will take to develop the needed organizational capabilities and to reach the targeted objectives on schedule. Here the managerial skill is figuring out what must be done to put the strategy in place, carry it out proficiency, and produce good results.

Fred, C.P. M. et al (2007) argued that the strategy execution apprehensive with the managerial work out of putting a newly chosen strategy into action. At the same time strategy implementation arrangements with the managerial train of overseeing the continuous detection of strategies that assembly it work with growing the aptitude of Postponement strategy execution that requires-

• Building an organization capability,
• Allocating company resources,
• Establishing strategy-supportive policies and operating procedures,
• Putting a recently chosen strategy into place,
• Motivating people,
• Tying the reward structure to the achievement of targeted results,
• Creating a company culture,
• Installing information, communication and operating system.

Task-5: estimating performance

It is all the time serving on management to weigh up the organization’s recitals and advancement by observing innovative developments and commencing corrective adjustments on them. It is obligation of management to keeping on the zenith of the company to settle on whether the maters are going in the right way as well as supervising competitor’s developments intimately.

For executing postponement strategy, the described tasks of above are necessitate to regarded with following factors-

Firstly, the inventory could be apprehended within a standard level. Consequently there would be a fewer stock keeping alternates and it should result less inventory aggregately. Secondly, for the reason that of the inventory is general, its elasticity is advanced implication those are identical components and could be in material form in an assortment of products. Thirdly, estimating is uncomplicated at the general intensity than at the stage of the completed products. Lastly, the point is predominantly appropriate at global marketplace wherever local anticipating would be less exact.

Anand, K. S., and Mendelson, H. (2007) mentioned that Postponement strategy making is not just a task for senior executives. In large enterprises decision about what business approaches to take and what new moves to initiate involve senior executives in the corporate office, heads of business units and product divisions, the heads of major functional areas within a business or division (manufacturing, marketing and sales, finance, human resources, and the like), plant managers, district and regional sales managers and lower-level supervisors. After fixing up the workings tasks of postponement strategy as said above in diversified enterprises, strategies are initiated at four distinct organizational levels-

• Corporate Strategy: It is the overall managerial game plan for a diversified company, it extends companywide an umbrella overall a diversified company’s businesses. This strategy comprises of the move made in order to set up business arrangement in different industry. To build up a strong corporate group it is essential to have corporate strategy. It also requires for all kinds of business organization.
• Business Strategy: This phrase indicates to the situation where manage make a business plan for private or small firm. Its play constructive role where this plan brings competitive benefits for the company, equally it may bring disadvantage condition as a consequence of applying weak strategy. The prospect of the company depends on these planning.
• Functional Strategy: This phrase determines the executive planning for specific functional activity for instance what would be the business method or what would be the main sector. This strategy while nar rower in scope than business strategy, adds relevant detail to the overall business plan.
• Operating Strategy: This type of strategy is most important since it design to consider the whole operating system for instance production to sales and distribution. Moreover, it concerns the maintenance of the company, so it also considers the narrower aspects to make planning. A company’s advertising manager needs a strategy for getting maximum audience exposure and sales impact from the budget.

Detailed examples of companies that use postponement

The Company: Shell

According to the requirement of this report, now here present “Royal Dutch Shell plc” an admired oil company as an example which follows the postponement strategy. By following this strategy of supply chain management it covers all stages of the oil industry’s production to distribution chain, these companies lease drilling sites, drill wells, pump oil, transport crude oil in their own ships and pipelines to their own refineries, and sell gasoline and other refined products through their own networks of branded distributors and service station outlets. Timely delivery and growth is the foundation of their success. Shell’s goal is to improve their energy projects, to secure their business growth and to enjoy competitive benefits. It always ensures excellent operational performance. Motto of their business is-“growth is their future”.³

Statement of the chairman

At end of the year 2007, chairman of this company states that-for energy industry it has been a vibrant year. With change of environment world’s demand use of fossil fuel. He has stated that the business environment should be established by at least three durable truths. These are describes as follows-

• Raising population and living standard caused high demand of energy. However, it is sufficient that It would be considerable that resourceful diversification of bio-fuel would be helpful to serve the growing net energy demand.
• This is not easy to get oil or gas. As a result it is hard to open new international company though already these products have been manufactured.
• It is challenging to maintain greenhouse gases for the increasing use of coal, Shell is enough experienced to maintain technological strategy for this purpose.

Their Intention

The Annual Report (2007) affirmed that the purpose of the Shell Company is to provide environment friendly, safe and efficient oil products and also other oil based products as they conducted in their business environment. Standard of performance is enough rich so that they can build up a strong growing position and enjoys plenty competitive advantages through their efficient service and social responsibility. Purpose of the Shell Company can be expressed broadly as bellow-

• The world needs energy: At every stage of human life, each and every person depends on energy. Energy is essential for making progress in education, financial standard, to dynamic business and so on.
• Provide superior technology: About 50 years ago it is hard to provide sufficient technology to extract oil and gas from the beneath of sea sand. But to keep promise and also to implement motto of company Shell employs world’s most ingenious intelligences to overcome the difficulties of using technologies in their business sector.
• Make progress: By taking long-run business strategies they make enormous progress in their business environment. They provide enhanced solutions of problems generate more proficient and enduring products, reliable to the customer and also their product is cost effective.
• Their business: This Company employed more than 104,000 employees in almost 110 countries. To assemble the mounting demand for energy efficiently and effectively Shell plays a crucial role and also keep assures in social responsibility. It also finds out and manufactures oil in addition to natural gas around the world. In order to do this, they conceded their business tasks jointly with well-known national oil companies. It has other business which manufactures raw materials for coatings, fabric, medical tools and computer, plastics as well as detergents. Moreover, they recently introduced Athabasca Oil Sands Projects which placed in Canada. The main object is oil sands from where it manufactures bitumen and exchanges it into crude oils.

Their strategy

Shell provides their product in a sound way though energy prices is too high, high inflation rate, US dollar remain weakening. However, they maintain high quality and normal price. This is the key point of their success and overcoming these challenges they prolong their business around the world. In this context, it predicted that 80% of their capital investment would be upstream in this year. Shell not only focuses on their product quality but also they concern about social environment. Thus, Shell builds a strong spot in branded business atmosphere all around the world.⁴

In what way does postponement give them an edge over their competition

Business organizations have come to recognize the vital impact that postponement strategy management can have in the achievement of competitive advantage. From the above discussion it can be said that postponement strategy refers a procedure of deliberately managing the procurement, movement and luggage compartment of materials, parts and complete inventory through the association. By using this company can maximize their profits.

Effective postponement strategy management can provide a major source of competitive advantage, in another word, a position of enduring superiority over competitors in terms of preference may be achieved through strategies. The bases for success in market place are numerous but a simple model is the “Three C’s” based around the triangular linkage of the incorporated company Shell. Here, the “Three C’s” refers-the company itself, their customer and their competitors.

Shell provide products or finished goods at a lower cost and hence at a greater profit. If they can produce good products only then they can secure the future profit, therefore managers are conscious about the quality of the product. After considering foundation of success of Shell, it was found that the cost advantage brings more commercial achievement than the value advantage. Generally the common trend is that the rival company would like to provide highest customer satisfaction in lowest price

. Therefore, it has to consider both cost and value advantage. From annual report it was found that it has value and productivity benefits which propose comparatively lowest price and provides the maximum apparent differentiated values. These two vectors of postponement strategic direction make Shell to enjoy competitive advantages. Competitive advantage of Shell can be express as following equation-

Objective is to provide up-to-date information on the topic

Postponement strategy management can provide a multitude of ways to increase efficiency and productivity and hence contribute significantly to reduce unit cost. Objectives of postponement strategy is to gain following advantages-

• Productivity advantage: Companies those have only one competitor who may be the low cost producer or may they have the greatest sales volume in the sector. The economics of scale should facilitate the fixed costs and would be extend over a superior degree of impact. Nevertheless, further predominantly to the collision of experience curve. The experience curve is an observable actuality, which has carried on its heredity in the earlier notion of the learning curve.
• Value advantage: from the marketing principle it was found that when customer purchases the product they first consider that the purchase benefits. Some times it may intangible benefit for example goodwill.

Arguments based on the evidences from published cases and empirical studies

Under global environment customer expectations for product variations is rising and for this firms and market leaders are move violently to improve efficiency in the global market place. From aforementioned discussion it is estimated that postponement strategy. As a result this strategy is right for a firm or for any industry. Benefits of postponement strategy described as bellow-

• Increase customer satisfaction.
• Improve ability to meet up the local and global demands which repeatedly changed.
• Magnify ways to enjoy huge competitive advantage.
• Build up company’s supply of customized goods in a wide range.
• Lead time is shorter than before to deliver finished goods.
• Increase their ability by reducing the forecasting horizon for better planning and allocation of resources.⁵

Current Situation

Market overview: First of all it is essential to provide general idea on international market of RDS⁶. Annual report shows that the global market growth was 4.9% during 2007 in Asian and European countries while it was 5.0% and 4.4% respectively in 2006 and 2005. However, this growth rate is slow in US. In 2007 their USA growth was 2.2%. In Japan during 2007 growth was 1.9% and that is considered as moderate level and In India their service sector has became expanded.

Developing stronger safety culture

To meet growing demand under the world’s most challenging environments Shell is committed to produce secure and responsible energy. In order to do this, their operating level is carrying out from oil platform in sea to chemicals plants, or desert regions and large refineries. In 2007 they renew and strength their safety policies and culture. The company also has a research department to accomplish safety actions located in London and Bangalore.

Future direction

In the next few decades they want to overlook where utmost world’s energy like oil gas and coal would be capable to meet up. They are also trying to discover sources of unconventional resources such as oil sands. It should required to pay attention on the affect of energy on environment and people. However, joint venture or partnership with local government and national oil companies may play a vital role in this case.

Fuels for the future

With the increases of automobile demand for fuel also be enlarge. Thus, vehicles depend on carbon dioxide (CO2) rather than on oil. In order to remove this trouble Shell use natural gas such as hydrogen and biomass to develops biofuels and diesel. They control the emissions CO2 and conscious people and government about the impact of CO2 in nature. For this they work hard for technical improvement to generate first generation biofuels though they produce diesel from oily plants like palm, Soya, and nuts and also from sugar cane, corn or wheat. Only in Malaysia, every day this company produces maximum fourteen thousand and seven hundred barrels Bintulu plant. More than that in 2007, Shell introduced two new refueling projects in USA and in Asia and it had outlet in Europe. ⁷

Conclusions

From the above discussion it can be said that the Business environment is continuously changing and force all of the industry to obtain competitive benefit by applying postponement policy. Applying postponement strategy is really effective because the concurrent tendency is consist of advance technological development. To compete with rival companies or for value adding or altering its features and design, this strategy play very important role.

Bibliography

Anand, K. S., and Mendelson, H. (2007), Postponement and Information Systems in a Supply Chain. Web.

Alderson, W. (1950), Marketing Efficiency and the Principle of Postponement, Cost and Profit Outlook, Volume 3, Number 4.

Antariksa, Y. (2008), Five Tasks of Strategy. Web.

Bowersox, D. Closs, D., and Cooper, M. B. (2002), Supply Chain Logistics Management, 1st ed., McGraw-Hill/Irwin: London, ISBN-10: 0072351004.

Christopher, M. G. (1998), Logistics and Supply Chain Management, 2^nd Edition, Pearson Education: London, ISBN: 81-7808-031-1.

Cohen, S., and Roussel, J, (2005), Strategic Supply Chain Management, 2^nd ed., McGraw-Hill: London, ISBN-10: 0071432175.

Coyle, J. J. et al (1995), The Management of Business Logistics: Instructor’s Manual, 6^th ed., International Thomson Publishing: London, ISBN-10: 0314204393.

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Enslow, B. (2004), Supply Chain Inventory Strategies, Benchmark Report, Aberdeen Group. Web.

Martin, J., and Roth, R. (200), Supply Chain Management, ECRU Technology Inc. Web.

Nobilis L., (2008), Competitive Advantage of Supply Chain. Web.

Oracle Corporation, Ernst, C. G. Young and APICS (2003), Postponement for Profitability. Web.

Royal Dutch Shell plc. (2008), Annual Review and Summary Financial Statements 2007. Web.

Swaminathan, J. M. & Lee, H. L. (2003), Design for Postponement. Web.

Thompson, A. A., and Strickland, A. J. (2003), Strategic Management: Concepts and Cases, 13^th ed., Irwin/McGraw-Hill, ISBN-10: 0072443715.

Footnotes

1. Strategic supply chain.
2. Market value added.
3. Royal Dutch Shell plc. (2008).
4. Royal Dutch Shell plc. (2008).
5. Oracle Corporation, Ernst, C. G. Young and APICS (2003).
6. Royal Dutch Shell plc. (2008).
7. Royal Dutch Shell plc. (2008).