CHAPTER ONE: INTRODUCTION
1.1 Background of the study
The supply chain parties; suppliers, manufacturers, wholesalers, retailers, third party service providers (3PLs), are pressured to mitigate and even their costs, time and supply to continue to be profitable while delivering their obligation to their customers. Borac, Milovanovic & Andjelkovic (2010) observes that embracing supply chain management (LSCM) can help attain this goal. However, Amarela (2017) notes from Azagedan et al., (2013) work that the environmental uncertainty affects lean practices. As a result, complex environments make it harder to detect, diagnose and respond to problems.
In previous researches, supply chain integration is described as a competitive means that manufacturers apply to generate income from production. This could positively affect the total output. Supply chain integration, customer-supplier relationship and partnership have been the tendency in business custom and management across industries (Shou & Feng, 2013). Shou & Feng (2013) endeavors to show that supplier performance is relationship driven. Lacoste and Johnson’s (2015) findings are slightly counter-intuitive. They find in their study that the supplier performance is process-driven. This further means that supply chain integration could influence supplier performance from the process driven perspective. A typical example of the process driven tools is “lean supply chain modeling” (Lacoste and Johnsen, 2015). This is in line with Shou ; Feng (2013) observation that lean supply chain modeling and infrastructural manufacturing decisions provides means to advance supply web and therefore, supplier’s performance. Their findings collaborate with the observation that there is a shared and recursive influence amid supply network attributes and practices for extending the scope of lean programs to the supply network. Feng found that supply network characteristics can either simplify or obscure the adoption of lean practices, but also that the initial match/mismatch state of the supply network characteristics is not frozen and companies can lever on lean practices to modify it toward more favorable conditions. Based on these premises, they classified practices for extending the scope of lean programs to supply networks into four groups: “supplier involvement, knowledge transfer, lean program commitment and lean program alignment” (Shou & Feng, 2013).
1.1.1 Lean Supply Chain Practices
Lean practice refers to an orderly method to enhancing value to the customer by identifying and eliminating waste through continuous improvement, by flowing the product at the pull of the customer, in pursuit of perfection (Manrodt and Vitasek, 2008). Typically, lean supply chain is a network of organizations directly connected by upstream and downstream flows of products, services, finances and information that collaboratively work to reduce cost and waste by efficiently and effectively pulling what is required to meet the needs of the individual customer (Lysons & Farrington 2006, Manrodt and Vitasek, 2008). Activities involved in a supply chain web entails procuring raw materials and parts, producing or assembling the products, storing the products, order processing and tracking, through to the distribution and delivery of the product to the final customer (Sanders, 2012).
Various research works and articles have acknowledged lean practices systems such as just-in-time (JIT), total quality management (TQM), total preventive maintenance programs, human resource management, value stream mapping, and vendor development, as well as their impact on operational performance (Demeter & Matyusz, 2011; Shah & Ward, 2007; Pal & Kachhwaha, 2013; Cudney & Elrod, 2011; Cua, McKone & Schroeder, 2001; Corbett & Klassen, 2006).
Davis and Heineke, 2005; Womack, 1990; and Badurdeen, 2008, identifies lean procurement, lean production and lean transportation as the components of Lean Supply Management.
1.1.2 Supply Chain Performance
According to Haag, Cummings, McCubbrey, Pinsonneault, & Donovan, (2006), performance involves the accomplishment of a given task measured against preset known standards. It would be expected that overall performance determines an organizational survival. It is a set of metrics used to quantify both the efficiency and effectiveness of actions; performance measures need to be positioned in a strategic context, as they influence what people do. They further observe that organizational key dimensions of lean supply chain’s performance can be defined in terms of quality, delivery speed, delivery reliability, price (cost), and flexibility. Time is described as both a source of competitive advantage and the fundamental measure of lean supply chain’s performance. Under the just-in-time (JIT) manufacturing philosophy the production or delivery of goods just too early or just too late is seen as waste. Similarly, one of the objectives of Optimized Production Technology (OPT) is the minimization of throughput times (Haag et al., 2006).
Organizations use the balanced scorecard approach as a tool for measuring performance. The balanced scorecard supplies managers with answers to: how do we look to our shareholders (financial perspective)?, what must we excel at (internal business perspective)?, how do our customers see us (customer perspective) and how can we continue to improve and create value (innovation and learning perspective)?. The balanced scorecard helps the organization translate its vision and strategy through the objectives and measures defined rather than stressing on financial measures which provide little guidance. According to Edgeman et al., (2004), measurable goals and objectives is one of the most important factors to a successful strategy.
Innovation of the balanced scorecard has ensured that while the balanced scorecard retains traditional financial measures telling the story of past events, where investments in long-term capabilities and customer relationships were not critical for success, it has factored in, the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation (Halldorsson, Kotzab, Mikkola, Skjoett-Larsen, (2007). The balanced score card is the performance measurement tool adapted to aid in investigating the lean enterprise and the supply chain performance of pharmaceutical companies in Kenya focusing on lean supply chain management practices; increase in lean supply chain efficiency; cost leadership; customer satisfaction; waste reduction; best practices and lean supply chain benchmarking (Onyango, 2011).