Literature Review - SCM FINAL

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The Inefficiency of Vendors and their Impact on Company’s Supply Chain: A Literature Review Name Course Institution Instructor Date

I. PURPOSE AND SCOPE OF THE REVIEW The contemporary business environment is becoming increasingly competitive. This is largely because of globalization which has created a globalized business environment. What this means is that competition has become global as businesses in one country have to compete with multinationals from other countries. In such an environment, survival requires reducing unnecessary inefficiencies and costs in as much as possible in order to improve the quality of products and service delivery. This would also help the business to maximize profits and ensure that the costs are not passed to the consumer through price increases. According to Christopher (2016), the supply chain is a vital component of a firm that has the of delivering value to the final consumer. For this reason, the logical conclusion is that any inefficiencies on the part of any supplier will compromise the efficiency and increase costs of the entire supply chain. Studies have been conducted that prove this premise. However, there are hardly any studies that specifically focus on Azerbaijan. In particular, there is a dire need of research that focuses on the engineering industry which is among the most globalized industries and with complex supply chains. For this reason, inefficiency by one vendor can affect the inefficiency of the entire supply chain and ultimately the performance of the firm. Inefficiency on the side of the suppliers can result in increased administration costs, increased quality problems and increased design costs. This study seeks to evaluate the supply chain of Sienmar Engineering in order to understand the inefficiencies of the company’s suppliers and exactly how such inefficiencies affect the company’s supply chain. It is important to note that the engineering industry in Azerbaijan is growing fast and has had many changes since independence. However, problems with local suppliers still persist. Suppliers in the country are faced with three particular problems. First, the

availability of products is highly localized. The problem with this is that the availability of products in Azerbaijan is not adequate to supply to engineering firms. The shortage of supplies causes downtime in production. Second, local suppliers often lack technical knowledge of the products and for this reason they are unable to provide alternative technical solutions as needed. Third, majority of vendors in Azerbaijan lack proper corporate structures something that results in lack of professionalism. This results in delays in communication, contracting, payment processing and deliveries, among other problems. The purpose of this study is to highlight the inefficiencies of local vendors in Azerbaijan and provide empirical evidence of how they impact the supply chain of companies with Sienmar Engineering as the case study. II. THORETICAL REVIEW In their paper, Sanderson et al. (2015) state that there are diverse definitions of supply chain management as a strategic asset of the firm. Larson and Halldorsson (2007) identify four perspectives of defining supply chain management. These are traditionalist perspective, relabeling perspective, unionist perspective, and intersectionist perspective. According to the first two perspectives, supply chain management involves the management of the integrated relationships of the firm on the supply side. On its part, the traditionalist perspective sees supply chain management as a strategic component of procurement which is particularly concerned building collaborative relationships with suppliers. According to this perspective, procurement is broader that supply chain management as it entails all the activities that are involved in the acquisition and management of supply inputs that the firm requires. The relabeling perspective is the modernist perspective of understanding supply chain management. It suggests that the modern times procurement is constantly morphing into supply chain management. The understanding of this perspective is that supply chain management is basically procurement

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which has undergone evolution to include more collaboration in supplier management shedding off the aggressiveness that is associated with traditional procurement. For the purposes of this study, the understanding of supply chain management adopted is the traditionalist perspective as proposed by Larson and Halldorsson (2004). To be more specific, the study will adopt the definitions of supply chain management that focus on the supply side in order to be able to evaluate the relationship between Sienmar Engineering and its suppliers. The definitions explain supply chain management as the integration of important business processes both within the firm and in collaboration with other firms and whose primary purpose is to add value for the firm’s customers and related stakeholders. This description is relevant to the current study as it suggests that any inefficiencies will hamper the process of value addition and therefore make the entire supply chain ineffective. Our study will explain how inefficiencies among local vendors from Azerbaijan manifest themselves and then explain how they impact the supply chain of the company. Just as it is the case with the definition, the theoretical frameworks, models, and conceptual frameworks of supply chain management are fragmented. According to Halldorsson et al. (2007), a combination of various theories gives a better understanding of supply chain management. These theories are drawn from different disciplines such as sociology where the relevant theories are social exchange theory, and resource dependency theory; economics where the relevant theories are transaction cost analysis, and agency theory; and strategic management where the relevant model is the resource-based approach. In their work, Shook et al. (2009) make similar arguments of combining several theoretical perspectives to explain supply chain management. They suggest ten theories as being vital to the understanding of supply chain management. These theories are drawn from sociology (critical, resource

dependency, organizational decision, network and institutional); economics (transaction cost analysis and agency); strategy (strategic choice and resource-based approach). The researchers also identify the theory of value of systems as another important theoretical explanation of supply chain management and particularly the importance of coordination and collaboration in supply-side relationships. On their part, Chicksand et al. (2012) single out the most dominant theoretical understandings of supply chain management. Again, the theoretical perspectives are multiple and drawn from different disciplines. They include resource dependency and network from sociology; transaction cost analysis and agency theory from economics; and resource-based approach and dynamic capabilities from strategy literature. The above studies show that there are many theories that explain supply chain management. This review will help us to choose the most relevant theories that will form the foundation of our study. In essence, we will choose the most plausible theories that explain the relationships of firms with external suppliers and how any inefficiencies in these relationships can be detrimental to the effectiveness of the entire supply chain system. This is what our research topic seeks to understand. The specific theories that we will use are transaction cost theory, agency theory, organizational decision-making theory, social exchange theory, the resource-based approach, dynamic capabilities theory, resource dependency, social exchange theory, game theory and systems theory. The theories and how they relate to our topic of study will be explained in detail in the paper. Our reliance on theories is informed by our realist objective of reviewing existing literature in order to understand how the theories guide the practice of supply chain management. However, the use of the theories will be limited and will be to the extent that they help to support the understanding which will emanate from the empirical study.

III. EMPIRICAL REVIEW In their paper, Anderson et al. (2007) traces the evolutionary journey of supply chain management. According to them, supply chain management emerged as a strategy in the 1980s aimed at helping companies to reduce the number of stocks held by rival companies in the same supply chains. Before that, supply chain management did not exist as a strategic practice. Instead, other terms that referred to the processes involved in the physical transportation and distribution of goods. The researchers explain that the process of value addition was not part of these processes and that is why it can be said that supply chain management did not exist at that time. The researchers argue that the adoption of total cost management strategies to the process of transporting and distributing products is what gave rise to supply chain management as it exists today. The review of this article is important to the current study because it gives a brief history of how supply chain management began. It provides important understanding of supply chain understanding which will be vital in our research findings. In particular, it will be critical in examining the understanding that local vendors have on supply chain management which relates to the hypothesis that there is general lack of professionalism which is detrimental to the efficiency of the entire supply chain system of the company. Zacharia et al. (2014) further explain the evolution of the concept of supply chain management. According to them, supply chain operations have had a dramatic shift from micro to macro. They state that supply chain management has evolved from being an internal process to dyadic, then to chain and ultimately to the chain as it is exists today. The transition is informed by the change of the perspective of understanding supply chain management. The micro-level understanding of supply chain was limited to management of materials and did not put emphasis on value addition. As the authors explain, the shift to macro-level understanding of supply chain

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management was triggered by increasing complexity of the system which necessitated deeper scrutiny of the system as a chain from the start to the end. The understanding of supply chain management in this literature will be vital in understanding how inefficiencies of a single vendor in one end of the chain can compromise the efficiency of the entire supply chain. In their article, Christopher and Holweg (2011) state that effective management of supply chains is essential for success of the firm. According to the researchers, it is essential for businesses to make significant changes in the way they perceive supply chain management. In particular, there is a need for shift from traditional view in which supply chain management was not seen as strategic to modern view. The explain that supply chains in the contemporary business environment have increased in complexity due to globalization and that they are prone to global issues such political uncertainties, pandemics and economic volatility. For this reason, certain conditions are necessary to make the supply chain effective. Walker and Jones (2012) explore the enabling factors that improve efficiency of supply chains. The first factor is focus on collaboration and coordination which is a shift from internal-oriented operations. In so doing, the firm is in a better position to improve quality of products, reduce costs and improve efficiency of the supply chain. This results in profits maximization and sustaining the efficiency of the supply chain. As a result, the supply chain management is business strategy and a source of competitive advantage as the researchers explain. Another important factor discussed in the article by Walker and Jones (2012) is commitment and contribution of all the actors involved in the supply chain. Other factors include innovation, organizational culture and incentives such as rewards. The research finds that firms that do not adopt sound supply chain management strategies would have inefficient supply chains. They find lack of trust among the actors within the supply chain, ineffective collaboration, resistance to

change and negative organizational attitude and culture to be among the factors that hamper the management of supply chains. IV. GAPS IN THE EXISTING LITERATURE As a developing country, Azerbaijan is struggling with supply chain management. The problem is conspicuous among local suppliers who are important players in the supply chain of a company like Sienmar Engineering. The problem is that there is hardly any previous research which is specifically focused on Azerbaijan. Previous literature exists for other countries and mostly developed countries. The findings of these studies may not be relevant to Azerbaijan because different countries fair differently when it comes to supply chain management. The findings of our study will be helpful to not only companies but also policy makers in the engineering industry who are tasked with finding solutions to the country’s challenges of supply chain management.

REFERENCES Anderson, D. L., Britt, F. F., & Favre, D. J. (2007). The 7 principles of supply chain management. Supply Chain Management Review , 11 (3), 41-46. Chicksand, D., Watson, G., Walker, H., Radnor, Z., & Johnston, R. (2012). Theoretical perspectives in purchasing and supply chain management: an analysis of the literature. Supply chain management: an international journal , 17 (4), 454-472. Christopher, M. (2016). Logistics & supply chain management . Pearson UK. Christopher, M., & Holweg, M. (2011). “Supply Chain 2.0”: Managing supply chains in the era of turbulence. International journal of physical distribution & logistics management , 41 (1), 63-82. Halldorsson, A., Kotzab, H., Mikkola, J. H., & Skjøtt‐Larsen, T. (2007). Complementary theories to supply chain management. Supply chain management: An international journal , 12 (4), 284-296. Larson, P. D., & Halldorsson, A. (2004). Logistics versus supply chain management: an international survey. International Journal of Logistics: Research and Applications , 7 (1), 17-31. Sanderson, J., Lonsdale, C., Mannion, R., & Matharu, T. (2015). Theories about procurement and supply chain management. In Towards a framework for enhancing procurement and supply chain management practice in the NHS: lessons for managers and clinicians from a synthesis of the theoretical and empirical literature . NIHR Journals Library. Shook, C. L., Adams, G. L., Ketchen, D. J., & Craighead, C. W. (2009). Towards a “theoretical toolbox” for strategic sourcing. Supply chain management: an international journal , 14 (1), 3-10.

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Walker, H., & Jones, N. (2012). Sustainable supply chain management across the UK private sector. Supply Chain Management: An International Journal , 17 (1), 15-28. Zacharia, Z. G., Sanders, N. R., & Fugate, B. S. (2014). Evolving functional perspectives within supply chain management. Journal of Supply Chain Management , 50 (1), 73-88.

Literature Review - SCM FINAL

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