What is meant by market turbulence and why does it happen, and examples of supply chains, that exhibit this phenomenon?

What is meant by market turbulence and why does it happen, and examples of supply chains, that exhibit this phenomenon?
February 11, 2015 Rob Abdul

Market Turbulence

Market Turbulence is the rate of change in the composition of customers and their preferences.

The Cause of Market Turbulence

An unstable economic climate, ever changing customer needs, and up-and-coming technology continually stirs up market turbulence.  The driving force in this new marketplace is the consumer. The driving factor is technology[1].

Our world is changing; customers are more demanding they want: new, innovative products, increased availability, shorter lead-times, and increased differentiation of product/service, better quality and most of all, at the same price!

A new survey[2] commissioned by a San Jose company highlights how wide-ranging customer’s dissatisfaction can become in today’s marketplace.

The results show that consumers are so steadfast about the quality of service they receive over the telephone that 59 percent would stop doing business with a company that delivered unsatisfactory service.  It does not stop there!

“The survey says 53 percent of them would make a point of telling friends and family members not to do business with the company; 48 percent of them would take the time to complain to a company representative and 16 percent would actually contact consumer advocacy groups to file a complaint.”

The quality of customer interactions with companies have been highlighted by the result of the survey to be the deciding factor irrespective of whether company fortunes rise or fall.

The environment also plays a role in provoking market turbulence. The impact of War’s[3] results in consumers wanting to spend less.

Globalisation aided with the commutation of the European Union as member states rather than countries and a single currency[4] is the emergence of regional trading Blocs.

The Internet provides the platform for a local business to compete on a global market.

With the onset of globalisation developed countries such as the United Kingdom, have outsourced manufacturing and industrial processes to third world countries as a cost cutting measure.  However business are now realising that competition is also on a global level and so there is nothing to stop foreign business to set-up branches here in the UK.  Politicians have realised the desperate need to protect[5] local companies with stiff regulations to prevent foreign business trying to enter local markets.

Supply Chains

Example 1

The Mobile phones industry illustrates a market where turbulence exists.  TheEuropean Market of mobile phones is saturated[6].  Nokia the Finnish mobile communications giant may be its own biggest competition with none of its competitors ready to mount a serious challenge.

There are also thousands of tariffs and dozens of mobile phone handsets to choose from.  Every six months there are new mobile phones available with new features and functions.

There is no customer loyalty as consumers tend to opt for brands that offer the best features at the right price.

Example 2

The Travel industry currently has a lot of turbulence.  The major environmental issues causing turbulence in the travel industry were:

  • The 9-11[7] attack on the World Trade Centre.
  • Concorde just outside of France killed[8] 113 people (August 16th2000)

Ryan Air and Easy Jet have offered cheaper prices compared to British Airways which has forced British Airways to rethink their strategies to win back customers.

Why is it difficult to match supply with demand and how may supply chain try and overcome the problem?

It is difficult to match supply with demand for many reason(s) these include:

Resources:

The availability of stock with respect to part (A) of this assignment, lack of human recourses, skilled workers, and poorly managed supply chain networks all play a role in the difficulty to match supply with demand.

Lack of Market Analysis & Research:

Lack of Market analysis would mean that a company or organisation would be misled in their strategic approach and would thus be subjected to being reactive to market change rather than the desired proactive stance.

Overcapacity:

Overcapacity in the market place is at the opposite end of the scale to the lack of resources.  The motor industry supplies 40% more than the demand requires[9].

Solution to Lack of Resources

A company or organisation may investigate into investment by larger corporation’s or may even qualify for government grants or even European grants to help fund more resources.  In some cases the business may become more specialised and narrow their product lines to concentrate on promoting their star products.

Solution to Lack of Market Analysis & Research

Please refer to “Solution to Lack of Resources” which the author feels also applies for this section respectively.  An EPOS system, Electronic Point of Sale can be utilised in a retail environment to gather up-to-the-second accurate data for interpretation for forecasting product sales and any trends that may be arising.

Solution to Overcapacity

Car manufacturers may adopt a strategy[10] Magma International Inc, have discussed in a recent media briefingusing existing auto assembly plants rather than building a greenfield site. With the current overcapacity of automaker plants, the strategy makes sense”, says Siegfried Wolf, president and chief executive officer of the newly created Magna Steyr.

Some of the difficulties that can occur in smoothing the flow of material along a supply chain?

Logistics

Good logistics are of paramount importance and are directly linked to smoothing the flow of material.  This is a universal concept throughout all supply chains.

Effective Supply Chain Management

In order to incorporate possible MRP[11], ERP[12] systems suppliers must also be up to scratch with, their internal workings of their business and their supply chains.  One way to decide on which suppliers are up to standard is to Benchmark them.

You can benchmark your supplier by the following:

  1. Process Benchmarking: Benchmark performance set by companies doing similar process. JIT[13] is the best example.
  2. Hardware & Software compatibility of ERP systems
  3. Security
  4. Reliability
  5. Flexibility
  6. Price
  7. Responding in influx in demand.

What prevents the supply chain / company from a smooth flow?

With respect to part A (ii) of this assignment the Leeds plant manager makes a decision based on minimum cost distribution.  This damages the collaborative efforts between Leeds and Bristol and Leeds and Glasgow who are left “high and dry” to seek alternative suppliers. This is one of the crucial factors as to why products and services do not have a smooth flow from company to company in the supply chain holistically.  Companies should work together and contribute to a common goal to make improvement to their supply chain.

“True partnerships are long-term collaborative relationships based on trust and a mutual desire to work together for the benefit of each partner and the partnership. True partners share information, plans, schedules, risks, rewards, problems, solutions, and opportunities through systems integration.”

James A. Tompkins, Ph.D.

Source: http://www.wgaprc.com/Globe/JTompkins0301.html

The difficulties that can prevent supply chains focusing their activities towards the end-customer?

Post World War 2 demand has out driven suppliers for customers.

Local and global markets are experiencing turbulence of some sort or another.  A business today has to also cope with the onset of globalisation as well an effective supply chain management.  Globalisation means increased competition, equalling more stress.  With all this anxiety businesses tend to wash their hands of a product as it leaves their premises, they merely unburden themselves and are of the view that it no longer of any concern to them.  This is completely untrue!  Every process and every company involved along the supply chain whether it is value adding or not is of crucial importance to the final product and meeting the customer expectations.

During the 1950’s it was the case that a company would conduct all the processes itself: processing raw materials, assembly, testing, research and design, advertising, sales and marketing etc.  During the early eighties[14] businesses such as IBM focused on supply chains and took a holistic view.  These days it can be observed that it is not businesses competing but supply chains competing with each other[15].

People have not focused their activities towards the end-customer before. There may also be cultural issues at play here.  Businesses may be reluctant to allow a member or members of another company along the supply chain to dictate business practices to improve the supply chain; because they have become institutionalised in their way of management and thinking and therefore change management may seem a foreign concept to them!

It is not easy to stand back and take a holistic view of the supply chain as separate companies are involved.  An employee of one company in the supply chain has no say what-so-ever in the activities that takes to the product or service before it arrives or leaves the company.

Whose responsibility is it to manage the supply chain, and how do they set out to do it?

Whose responsibility is it?

The responsibility of managing the supply chain should be spread across all the parties involved in the supply chain.  Every company that comes into contact with the product or service has responsibility to participate in managing the supply chain.

How they should do it?

A supply chain regardless of its size or complexity should have a Management Team to take a holistic view of operations carried out form earliest to the final stages of the supply chain.  Each company within the supply chain can appoint a supply chain manager to represent their company in order to air their concerns and proposals improving the overall  supply chain.

A management team would be more effective as it may prove to be too much work for a single individual to make sense of the possibly hundreds of companies in the supply chain.  A management team would be sheltered for the cultural drawbacks of individual companies and would therefore prove to be more poised for success.

A sense of strong leadership is also required to direct the team and keep the team members motivated and focused on the tasks at hand.  These tasks include:

  • Developing strategies to deal with adversarial attitudes on the part of suppliers, and data integrity problems when exchanging data with suppliers and customers
  • The “shamrock” structure for making sure managers, contractors, and consultants are performing the right tasks
  • Lessons from Y2K for managing inventory more effectively
  • How a “coordinating governance structure” can help you manage the phenomenon of concurrent competition when dealing with former rivals

The following six key initiatives should form the fundamental aims of the Supply chain management team generically:

  1. Developing supply-chain relationships that promote open collaboration and predictability. Open collaboration and predictability of a supply-chain member’s actions are prerequisites to many of the other initiatives.
  1. Stimulating continuous improvement in systems cost, quality, and cycle times. This is expected to be an iterative process, not a one-time event.
  1. Measuring economic performance, which is essential to tracking our progress.
  1. Developing processes to design efficient supply chains. This involves both supplier selection and chain structure.
  1. Working to evaluate and promote technological solutions for real-time communication, measurement, and decision support. E-business and the Internet are key enablers to this process.
  1. Educating and training people in the techniques and strategies that we have developed. To that end, we are working to encourage standards for supply-chain management education and training

 

[1] Discovering the Process of Mass Customization: A Paradigm Shift for Competitive Manufacturing Report L.J. Anderson

[2] Customers more demanding of quality -http://sanjose.bizjournals.com/sanjose/stories/2002/10/07/daily32.html (Downloaded on 1st March 2003)

[3] The war’s impact: Companies cope with office anxiety – http://sanjose.bizjournals.com/bizoutlook

[4] The EURO

[5] The Global Society http://www.essaybank.co.uk/free_coursework/2383.html

[6] Report: Mobile Phone Sales Slightly Off – By Jay Wrolstad Part of the NewsFactor Network

[7] September 11th 2001 – America’s War Against Terrorism, 9/11 University of Michigan – http://www.lib.umich.edu/govdocs/usterror.html (Ref. 3/04/03).

[8] France joins Britain in revoking Concorde airworthiness certificate August 16, 2000 CNN.com

[9] Nissan and the Euro, Richard North – http://www.silentmajority.co.uk/eurorealist/Nissan.html

[10] Magna Offers Overcapacity Solution – Tom Murphy – Ward’s Auto World, Apr 1, 2001 http://waw.wardsauto.com/ar/auto_magna_offers_overcapacity/

[11] Materials Resource Planning.

[12] Enterprise Resource Planning.

[13] Just In Time Management, a philosophy more relevant to manufacturing of goods.

[14] From Steam Engines to Global Supply Chains – Wharton Innovations http://www.wharton.upenn.edu/innovation/supplychain.html

[15] MSI- Competing supply chains the business model of the future – Article http://www.manufacturing.net/esec/Article_180402.htm

Rob Abdul
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