Aligning Product Strategy to Supply Chain Practices
Site: | Saylor Academy |
Course: | BUS606: Operations and Supply Chain Management |
Book: | Aligning Product Strategy to Supply Chain Practices |
Printed by: | Guest user |
Date: | Saturday, September 7, 2024, 7:44 PM |
Description
Read this article. The authors study whether organizational products are aligned with optimal supply chain types. Besides the product, what other aspects must be analyzed when selecting a specific type of supply chain?
Abstract
External factors such as blurring market boundaries, escalating customer diversity and increasing global competitive threats have forced businesses to build strategies around key products and formulate market-driven strategies that are integrated with relationship and supply chain strategies to deliver superior customer value. Indeed, in the modern era of supply chain management, organisations are getting more integrated with their suppliers and customers as a way to manage the total supply chain. The purpose of this research was to determine if product strategies and supply chain practices of small craft business are aligned. Personal in-depth interviews were conducted with nine craft businesses operating in Gauteng Province, South Africa. The findings revealed that craft businesses struggle to match their product strategies with their supply chain strategies. Craft businesses also exhibited some inbound supply chain weaknesses.
Source: Craig Voortman and K. Mercy Makhitha, https://jtscm.co.za/index.php/jtscm/article/view/126/257#8
This work is licensed under a Creative Commons Attribution 2.0 License.
Introduction
The alignment of a business's product strategy with
its supply chain strategy is a challenge for all businesses to master –
whether they are small, medium or large enterprises. Whilst larger
multinationals often have the skilled staff to make sure that their
product strategy is closely aligned with their supply chain strategy,
small-to-medium-sized enterprises often face significant challenges
because they often do not have either the additional personnel or the
skilfulness to do so. Small businesses often are 'time starved' because
they typically have fewer staff members who must wear 'many hats' and
must constantly multitask for the business just to survive – let alone
thrive. However, small businesses are not just typically 'time starved',
but often 'resource starved' as well. In other words, they are often
pressured to perform many tasks in a short period of time in the working
day with far fewer resources typically than the medium-to-large
business. Typically, smaller businesses – especially 'start up'
businesses – face significant resource challenges including human
resource, financial resource, operational resource and asset resource
challenges (in terms of vehicles needed, storage or warehousing space
needed, as well as office space with required items such as sufficient
computers and other capital asset requirements).
Small businesses
often develop new or innovative products; yet, just making or sourcing
these for the marketplace can be challenging given their abovementioned
resource constraints, namely time, money, people and physical
facilities. Many small businesses are often very successful with the
early development and management of their product strategy whilst the
products are new to the marketplace or selling in smaller volumes. Where
they often struggle is with the more 'sophisticated art' of linking
their product strategy to a more developed 'supply chain strategy' as
their small business grows and an increasing number of products are
sold. As sales volumes increase, more products are sold and these must
be sourced or created. Problems often arise upstream in the supply chain
(raw materials sourcing and related tasks), or even downstream in the
supply chain once the product has been created (physical storage and
distribution by road, rail, air or sea). There is little wonder then
that such small businesses often struggle to align and fine-tune their
product strategy with their supply chain strategy.
The alignment
of these strategies within small craft businesses (in Gauteng Province,
South Africa) is therefore the specific focus of this research. Whilst
there has been scant research on craft supply chains in other parts of
the globe, there has been no research conducted on the craft supply
chains of smaller craft businesses operating within Gauteng, South
Africa. Furthermore, very little information is available on how craft
producers (who typically supply tourists and the tourism industry) align
their innovative and inventive product strategies with similarly
appropriate and successful supply chain management (SCM) strategies. In
simple terms, one needs to identify whether they have sufficient
vehicles to distribute the volumes of finished goods produced (outbound
distribution), whether they have sufficient storage space to warehouse
the products they produce and whether they match their inbound raw
materials requirements with the volumes they produce (demand
forecasting).
Background
Management of multiple upstream and downstream linkages
The
integration of the supply chain, with closer linkages occurring between
suppliers and customers is increasingly becoming a reality of modern
supply chains and business enterprises. Companies nowadays have expanded
their planning and control perspectives to include 'upstream'
(suppliers) and 'downstream' (distributors and customers) entities. The
integration of market-driven strategies with supply chain strategies has
become a focus of many businesses in recent times as they strive to
offer superior customer service.
Indeed, in the modern era of SCM, organisations are more 'integrated
with their suppliers and customers in order to manage the total supply
chain from raw materials to the ultimate customer, the only source of
revenue'.
The challenge facing modern
businesses – both large and small – is to constantly develop products
and services that meet the ever-changing needs of customers. All businesses today face competitive
challenges and one's product strategy – in terms of stock keeping units
(SKUs) kept – impacts on cash flow and other business dimensions.
Businesses constantly have to decide on the number and types of products
to offer in the market, as well as how to manage
these products more effectively in the presence of competitors and
turbulent external environments. One of the key interfaces between
marketing and logistics is deciding on the size and range of product
offerings. The different perspectives of marketing and logistics becomes
a cardinal concern when one has to decide how many SKUs to hold:
Marketers
often prefer to carry higher quantities of particular items because
this reduces the likelihood of stockouts (being out of stock at the same
time as there is a demand for it). However, from a logistics
perspective, higher quantities of inventory (1) necessitate additional
storage space and (2) increase inventory carrying costs.
Therefore, the challenge facing all businesses
is to make sure that they, (1) carry stock the market wants and needs,
(2) in the right volumes and (3) that are sufficiently differentiated
from competitors so as to give them a differentiating 'edge' in the
marketplace.
Product differentiation as a key focus of successful business strategy
In
the craft business, which is the focus of this article, product
differentiation is a key positioning strategy because customers (often
international or local tourists) must be convinced to purchase 'your'
particular and unique product that is offered:
Many basic
differences exist between the kinds of products marketed in the various
segments of the economy. Some products in the competitive segment are
undifferentiated (not distinguished by specific differences), whilst
other products are differentiated. In some cases the products are
intrinsically different (differentiated); in others, manufacturers are
successful at making their products appear different from those of their
competitors. Even in those cases where a product cannot be made
different in substance, producers can get premium prices if they
persuade customers to believe that their products are superior.
In layman's terms, three 'categories' of product
differentiation would apply to the craft industry. Firstly, the products
that are actually different from other crafts available in craft shops
or tourist 'flea markets'. Secondly, some suppliers or manufacturers can
make some products appear different from their competitors when very
few differences are actually present. Thirdly, some suppliers or sellers
of crafts can simply make their customers believe that their products
are different from other competitors, when in fact they are virtually
identical. The power of persuasive marketers or salespeople would
obviously be paramount in the third example because one would have to
influence the perception of the customer in such a way that they would
indeed think or believe that one's product was actually different (when
in fact it was not!).
As businesses (including craft businesses)
offer a wide variety of products, appropriate SCM strategies must be put
in place and integrated with product strategy in order to create
competitive advantages. This is because one single supply chain strategy
cannot be applicable to the different types of products and markets
that a business sources. In order to offer a wide
variety of products to the craft industry, one's product or service
strategy must be fully integrated with the supply chain. A fully
integrated and well-coordinated supply chain will result in craft
supplies being created and produced on time for demand (lead time
management), created according to the unique and ever-changing needs of a
diverse customer set, as well as being produced in a cost-efficient and
profitable manner for the ultimate seller of the crafts. Hugo and
Badenhorst-Weiss underscore the essential need for
demand-driven sales planning, lean manufacturing and the integration of
processes which will result in reduced cycle times for both large and
small businesses.
Structuring the supply chain for product differentiation, product range, profitability and customer satisfaction
The
craft supply chain – as is the case with any successful supply chain –
needs to be structured such that it supports a successful business unit,
a particular product range or a specific item that is sold. The design of supply chain
activities depends on the product strategies being adopted. If one is
going for mass-produced products, then very little product
differentiation takes place as all products manufactured should be
identical. However, in the craft industry, product differentiation is of
paramount importance and will influence whether the final customer
either purchases one's product or not.
The ability of the supply
chain to offer a uniquely differentiated craft product places additional
pressure on the producers of such products and they must constantly
explore new and unique (different) ways of manufacturing crafts that
customers will like and buy. It has been observed by the researchers
that when a craft maker produces something unique and different for the
tourist craft market, it is simply a matter of time before a number of
'copied' imitations appear in the craft market. The early innovation is
quickly followed by replicators – and the replications then quickly
become mass produced – until such time as the tourist no longer
purchases these replications. The innovation cycle then begins again
with a new innovation which is offered to the tourist market and shows
early success, only to be imitated once again by fellow competitors.
Product differentiation strategies thus form the basis for supply chain
development and should be determined based on the understanding of
customer requirements, competitor offerings and unique product offerings.
Current supply chain management and product strategy research often favours larger businesses
Research
on SCM and product strategy has principally focused on large
(multinational) businesses. The impact of SCM on
the product strategy of small businesses has not been extensively
researched. This is particularly the case with
small craft businesses where product design and development are regarded
as two separate functions that cannot be integrated.
Craft businesses often design and produce unique
products first and foremost and then decide on the markets and
customers as an afterthought. Most modern multinational large businesses
would seldom, if ever, do this. Rather they will first conduct thorough
market research through lengthy questionnaires, focus-group analysis
and product sampling and testing, before even considering launching the
new product offering in the marketplace. As there are often vast sums of
money (research and development funds) invested in such product
roll-out strategies, they minimise their risk of market success by
carefully, and meticulously, first testing the customer's response to
their proposed product prior to launching it in the intended market
(through target-marketing as well as random sampling and testing and a
host of other market research techniques).
The methodology of new
product design and development strategies of small craft businesses is
significantly different to large, sophisticated enterprises with
extensive capital at their disposal to do extensive pre-launch testing
and related product development. Not only do small craft businesses
often consider their customer market after their product has been
created and even manufactured, but they also only often factor in how
the product will be sourced and supplied (or manufactured) in the
post-design phase of the product's life cycle. The supply chain
activities of small craft businesses are therefore often more reactive
rather than proactive. Small businesses, according to Vaaland and Heide, often do not employ SCM effectively and small craft
businesses are no different in this respect. As a result, small craft
businesses often face various logistical and supply chain challenges
such as excessive inventory, poor customer service, declining profits
and escalating costs.
Effective lead time management is
well-acknowledged with large enterprises but is also critically
important in small craft businesses. As consumers demand lower prices
and higher quality products and services, retailers, manufacturers and
distributors are under pressure to achieve greater cost-efficiencies and
improve lead times, which makes supply chain efficiency a key factor in
gaining a competitive advantage. The benefits of an
integrated supply chain are that it leads to reduced inventory costs,
higher quality products and higher customer service levels.
Understanding and identifying appropriate supply chain techniques
requires one, firstly, to know which products will sell most frequently
and, secondly, which market segments exist, because clearly defined product strategies are key to the
establishment of an effective supply chain.
The purpose of the article
Research on the impact of supply chain
design on product strategy for small businesses is sparse. The supply
chain includes upstream linkages (from the raw materials and
manufacturing side), internal linkages (either manufacturing or
crafting, or internal business processes) and downstream linkages
(focused on the end customer); this research will focus primarily on the
internal and downstream linkages. Internal linkages include those
value-creating activities that relate to the process of transforming raw
materials into finished products and services, whilst downstream linkages refer to distribution activities
involved in warehousing, storing, order processing, order picking and
packing, shipping, delivery vehicle operations and distributing the
finished product to the customer. Marketing,
distribution and customer sales and satisfaction are the downstream
activities, whilst the upstream portion of the organisation's value
chain focuses on feeding the production or conversion process of the
supply chain.
In light of the above, the
purpose of this article is therefore to determine if product strategies
are aligned to supply chain practices in craft businesses in Gauteng,
South Africa. This research will also show that significant challenges
are often faced by small-to-medium-sized craft businesses (in Gauteng)
in aligning their product strategies with their supply chain strategies.
One may also logically be able to extrapolate that if
small-to-medium-sized craft businesses face alignment problems, then
other similar small-to-medium-sized businesses in other industries may
also face similar challenges to those of craft businesses. In other
words, if small-to-medium-sized craft businesses face significant
challenges in matching or aligning the gap between their product and
supply chain strategies, then other similar-sized businesses will face
similar challenges both in South Africa and other parts of the world.
However, this latter statement will not be proven or discussed in this
research article as it is beyond the scope of this research project
(research limitation).
Literature review
Defining supply chain management
Scholars on
SCM have conceptualised the supply chain in similar, yet slightly
differing ways. However, most definitions emphasise the importance of
integrating supply chain activities that need to be managed, coordinated
and integrated in a cost-effective manner to ensure the satisfaction of
all concerned. The Global Supply Chain Forum define the supply chain as
the integration of key business processes from end user through to
original suppliers, and which provides products, services and
information that add value for customers and other stakeholders. It includes upstream linkages, such as sources
of supply, the internal linkages inside the organisation and downstream
linkages such as distribution to ultimate customers. These activities
are concerned with the integration of business processes from end user
through to original suppliers that provide products, services and
information and add value for customers.
Supply chain management is also
defined as a set of approaches utilised to efficiently integrate and
coordinate the materials, information and financial flow across the
supply chain so that merchandise is supplied, produced and distributed
at the right quantities, to the right location, at the right time, in
the most cost efficient way, whilst satisfying customer requirements.
The concept of SCM has four major components that must be managed:
- The flow of physical materials from suppliers, downstream through the business itself and finally to distributors and/or customers.
- The flow of money upstream from customers back to companies and suppliers.
- The flow of information up and down the stream.
- The flow of products back (upstream) from the customers, typically for repair or recycling.
Supply
chain management has thus evolved to become a much more sophisticated
science with multiple upstream and downstream linkages that need to be
carefully managed:
Supply chain management ... is the management,
across and within a network of upstream and downstream organisations,
of both relationships and flows of materials, information and resources.
The purpose of supply chain management is to create value, enhance
efficiency, and to satisfy customers.
In addition, SCM has also become an
important tool for businesses to achieve competitive advantages.
Sutherland and Canwell define the supply chain as the integrated management and
control of the flow of information, materials and services from
suppliers of raw materials, through to the factories, warehouses and
retailers, to the end customers. It includes all the activities that are
involved in delivering products from the raw material phase to the
customer, including the sourcing of raw materials and parts, production
and assembly, warehousing and inventory assembly, order planning and
order management, distribution across all channels and delivery to the
customer. The
primary purpose is efficient physical distribution of final products
from manufacturers to end users in an attempt to replace inventories
based on useful, up to date information.
Conversion of raw materials into finished products
The
purpose of SCM is to support the transformation of raw materials and
component parts into shipped or inventory goods, a cardinal activity for
all craft businesses. Its main
function is to provide goods and services as required by customer and
also to provide form, time, place and quantity utilities. Integrating all supply chain activities may create competitive
advantages for the organisation if such activities are run efficiently
and effectively. This is because the
decision by one supply chain member affects the activities of other
supply chain members.
Cost-efficient supply chains require a reduction in inbound costs
The
increasing demand for a cost-effective supply chain has put pressure on
all businesses to cut costs. Therefore, a
cost-effective supply chain is a means of survival for businesses as
purchased goods and services account for 80% of sales revenue. Supply chain management serves to manage activities required
for specific products, such that there is a significant competitive
advantage in the production of quality products that are cost-effective. Thus, SCM is important for three reasons: to reduce
inventory management, to increase customer service and to help build
competitive advantages. Well-managed
supply chains help create competitive advantages and lead to increased
profit for the business through coordinated attention to costs, customer
service, reduced inventory levels and reduced inventory carrying costs. Small businesses are less likely to
employ a person to facilitate supply chain management as their
operations are less sophisticated, which could lead to an increase in
costs and, typically, to an unacceptable level of customer service.
The product strategies used by small businesses for gaining competitive advantages
Product
strategy is concerned with the position of the product in the market,
attributes and characteristics, its life cycle, buyer behaviour, price,
promotion, distribution, customer service and packaging requirements. Decisions on product
strategy are made at various levels – corporate, business and
operational. Product strategy includes decisions on product assortment
or mix, business unit decisions, product line, number of product per
product mix or group, choice of target market, desired positioning and
product attributes such as brand elements, product development and
improvement, packaging and service level.
With
large businesses, marketing managers are responsible for making
marketing and product strategy decisions. With small businesses, owner-managers are responsible for
various tasks including product development and management, product
portfolio (range) management, marketing, production and purchasing,
human resources and so forth.
Smaller businesses have no choice but to centralise these functions and
have limited specialisation because of fewer personnel available to
specialise in certain functions. These
managers of smaller businesses often lack the time, skills and expertise
required to manage their product portfolios successfully and
effectively. They become generalists
instead of specialists because they perform all functions and therefore
may not be able to specialise in all these areas.
Product brand strategies and development of brand equity
Product
strategy decisions also relate to decisions about brand equity, which
establishes a link between a business the new products offered
because a business reaps the benefits of owning such a product brand. Brand equity is the term used to describe the value
of a brand name and creates value for both customers and the firm. For example:
The brand can give
customers confidence in the purchasing situation. Firms benefit
enormously from having strong brand names. Investment in a brand name
can be leveraged through brand extensions and increased distribution.
High brand equity often allows higher prices to be charged; hence it is a
significant competitive advantage.
Brand equity
is thus very important and the research conducted amongst the craft
businesses consulted revealed that not all of the craft businesses
understood the value of brand equity and a brand name, nor did they
actively utilise or develop brand equity.
Product brand
strategies also look at how a product will be positioned in the market
against competitors.
As part of corporate strategy, businesses make decisions on the range
and assortments of products to produce and market. A product assortment is
a set of all product lines and individual products that a firm sells. It involves the selection of a
range of components and the management of the product range by adding or
removing of individual products within a range.
Businesses also have to eliminate products that do not merit marginal
evaluation or that are low sellers in order to make their procurement
function and overall business strategy more efficient.
Effective product differentiation and diversification strategies
Businesses
that differentiate their products from those of competitors create a
competitive advantage over their competitors. A competitive advantage is
the ability to deliver superior value to the market over a protracted
period of time. A business achieves a sustainable competitive advantage when
an attractive number of buyers prefer its products and services over
those of competitors. Product assortment involves
making decisions on the family, classes and lines of product to stock,
product types per line, brands per type, items per brand within a
product type, as well as the allocation of shelf space to each item. Some businesses also add
different sizes, styles, colours, flavours or products as a way of
extending their product lines and thereby differentiating themselves
even further from their competitors.
Certain
marketing specialists believe that product variety offers a business
market power, which, in turn, increases the profit margin and market
share; this has therefore led many businesses expanding their product
lines. Expanding product lines is known as
product diversification, which simply means the expansion of the product
mix by adding new product ranges or items. It may also result into expanding to new markets and the
introduction of new products. Ideally businesses –
both large and small – try to develop products and services that are
difficult to copy, which often results in a sustainable
competitive advantage:
Sustainable competitive advantages provide
the organisation with more time to exploit them in winning and keeping
customers and in growing the business. These advantages represent the
crown jewels of any organisation, providing the opportunity to create
real competitive differentiation in the marketplace.
Creating
a real competitive differentiation in the marketplace is one of the
obvious goals of the craft industry – each and every craft producer,
supplier and seller tries to offer the market a product that is unique
and/or difficult to copy.
Product diversification may lead to
increased costs because new and different products with different
features have to be produced. These products might require different
equipment, expertise, machinery requirements, as well as a different
supply chain, which may ultimately lead to increased costs. Although
expanded product lines offer a business the opportunity to differentiate
themselves, it also increases the level of complexity and increased
costs of product fulfilment.
Although
some small businesses do not want to grow, they all need to adapt to the
changing environment and customer needs, even if they do desire to stay
small businesses. For small
businesses to grow, they need to recognise and exploit market
opportunities through the use of advanced manufacturing systems,
creating new distribution channels, products and services and customer
segments. Small businesses often serve market niches and have narrow
specialisation. They are known to introduce
new products without prior research, which increases product failure as
these new products have not been pre-screened or 'tweaked' based on
focus-group feedback and surveys. They do not have well-defined
strategies in place to manage the product mix or the new product
development process. Although they are known to exploit
market niches, some introduce new products and product lines in the
hope of growing and sustaining their businesses. However, small businesses need to determine the right
product variety to meet the needs of the market.
Small businesses have, in general, limited ability to
compete because of a number of constraints such as the lack of access to
technology, excessive costs of product development, ineffective selling
techniques and market research, information gaps between marketing and
production functions and excessive capital requirements. Most small businesses enter the market led by a single
product or technology, without the significant finance required for
broadening their product range.
The
various classifications of innovation indicate that innovation can take
place with new products (radical) or by making improvements to existing
products (incremental). Incremental innovation happens when a business
gradually improves its products, services and processes in response to
customer needs, whilst radical innovation leads to the development of
entirely different and new products, new processes and new markets.
O'Dwyer and Ledwith
reveal that businesses which are good in bringing new products to the
marketplace perform better and that those which are good at launching
new products are likely to have those new products succeed. They often
have advantages over big businesses in the sense that they are close to
customers, work within an informal and flexible environment, have a
risk-taking attitude and can quickly change and adapt to a new way of
doing things – something which bigger businesses often find very
difficult to do (although there are noteworthy exceptions such as the
Apple Company with their innovative iPhone, iPad and iPod which were all
radically different from other competitors' offerings when they first
launched). The ability of small businesses to introduce new products in
the market also creates opportunities in new niche markets, which is
important for business survival.
Small
businesses with long-term strategies were found to create and exploit
new market niches with innovative products very effectively;
furthermore, they were found to outperform those businesses who only
changed their products gradually over a longer period of time. Big businesses are
often content to survive in their original markets and often simply
turn to existing products and markets, regardless of changes in the
market and the external environments. Certain businesses survive and
thrive through the releasing of new innovative products into the market
whilst many large businesses simply maintain the status quo and offer
few (if any) radical new product offerings.
Integrating product strategy and supply chain management for competitive advantages
An
integrated supply chain requires continuous information flows which
lead to best product flows. Supply chains are effectively designed during the
product development stage, when product, process and information system
decisions are specified and determined. Decisions, such as functionality
of the product, packaging, logistical channels, source of materials, as
well as selection of product and process technology, are also made
during the supply chain design stage. New product design can often change one's design of the whole
supply chain; new product designs can therefore often result in
substantial changes to one's existing supply chain setup and process
(from suppliers through production to final consumers).
Product
strategy also includes the physical characteristics of the product,
which, in turn, influences supply chain costs, such as storage, handling
and transportation. As a
result, an integrated supply chain will be more cost-effective for the
business. This requires that one's
product strategy must take into account supply chain requirements such
as transport and storage, which leads to improvements in profits, or, if
poorly executed, extra costs. Integrating
and involving SCM early in the product design and development stages
helps minimise overall supply chain costs whilst improving customer
service levels and logistics performance. Supply chain
management can be useful in differentiating a business from its
competitors, and can also help create a marketing opportunity for a
product that is supported by an effective and efficient supply chain.
Research by Khan and Creazza reveals the lack of integration in the supply chains of small
businesses, especially the downstream linkages in the supply chain,
through distributors and on towards retailers. Khan and Creazza
further suggest the establishment of cross-functional teams
for the development of new products, teams which involve all relevant
resources to be included in the design process so as to enable small
businesses to restructure their supply chain and to integrate it with
product strategy. Lack of integration downstream can generate
misalignments with the market, causing delays to the effective launch of
new products – which could ultimately lead to new product failure. The integration of internal processes with
external stakeholders such as suppliers and customers are essential for
effective SCM to occur. Linking one's
supply chain strategy to a business strategy requires one to carefully
define the business and supply chain processes involved in producing a
product or service. This might be a
problem for some small businesses, such as those involved in craft
production, where the owner manages the business, produces and market
the products. Craft businesses are typically owner-managed and usually
run by owner-managers with few (if any) employees. Certain businesses
interviewed did however employ one or two employees within their
businesses.
Research method and design
A qualitative case study research
method was adopted for the study. This research method is similar to
that adopted by Khan and Creazza to explore the interface between
product design and the supply chain. A qualitative research method was
deemed appropriate as it is concerned with the participant's spoken
word, pertaining to their experience or perception. Data were collected by means of face-to-face
interviews with the respondents. Interviews lasted between one and a
half to two hours. Respondents were visited at their business premises,
which made it possible for the researcher to see their products and
production points. As they did not have to take time off work,
respondents were cooperative. Nine small, craft production businesses
were targeted. This is similar to other studies conducted by
Hogarth-Scott et al. who interviewed 18 businesses and Mosey who interviewed five businesses. Qualitative study allows one to
explore the topic at hand and is appropriate when there is lack of data
on the topic, as is the case with the craft industry.
The study
targeted different craft businesses within the industry, including
ceramics, homeware, décor, beadwork, fashion, jewellery, recycled
materials and clay. A convenience sampling methodology was adopted for
the study because there is still no accessible and established database
of craft businesses in South Africa. Municipalities in Gauteng have been
in the process of creating such a database but this has yet to be
finalised. Respondents were selected from the Gauteng Economic
Development Agency database of crafters that were selected to take part
in their exhibition which was hosted in Gauteng. Only those operating in
the Johannesburg area were targeted because of time constraints
relating to travel and associated costs that would have arisen should
interviews have been conducted in Cape Town, Durban, Port Elizabeth or
other areas. Field notes were taken during the interviews with nine
owner-managers and it was ensured that respondents provided information
on each of the elements of a marketing strategy. This was achieved by
transcribing from field notes which were typed into a Word document. As
the questionnaire was designed to cover various sub-topics under
investigation, data were analysed for each of the stated topics using
content analysis.
Results
Demographic profile
The business profile of
respondents is shown in Table 1. Respondents have been in operation for
more than 4 years, with 3 of them having operated for a longer period:
Respondent 3 for 8 years, Respondent 6 for 10 years, and Respondent 9
for more than 13 years. Except for Respondent 7's business, which
operates as a partnership, all the other businesses are individually
owned. Respondents run different craft businesses such as jewellery,
ceramic, interior and office décor and fashion. Businesses are
owner-manager run, with the exception of Respondents 3 and 7: Respondent
3 employs additional people who help with the design and manufacturing
of products, whilst Respondent 7 works with a business partner. All the
respondents employ additional people when demand is high. All the
businesses are formal and registered businesses. They are male-run
businesses, except for Respondents 3, 4 and 9 which are female-run
businesses. Respondents' revenues vary from R40 000 to R500 000 per
year, except for Respondent 3 who has no record of annual revenue.
Although some businesses have been operating longer than others, these
have not necessarily been performing better than the more recently
established craft businesses. For example, Respondent 9 has been in
operation for 13 years, yet their sales revenue is lower than for
Respondent 7 who has been operating for just 4 years. Respondent 3 pays
no rental because she operates from her house. She works with three
other people, but they sometimes operate without income as the
businesses does not generate sales on a monthly basis.
TABLE 1: Business profile of the businesses interviewed.
Number of product lines sold
Except
for Respondent 3, who has six product lines, respondents have between
two and five product lines. As small businesses are owner-managed, it
makes sense that these businesses have narrow product lines because they
might not be able to manage all the product lines effectively. As shown
in Table 2, Respondents 1, 3, 4, 5, 6, 8 and 9 also have a narrow
product assortment, whilst Respondents 2 and 7 have a deeper one.
Respondents 1, 3, 4, 6, 8 and 9 also do not have brand names for their
products, whereas Respondents 2, 5 and 7 do have branded products. For
example, one respondent has two brand names, one for the local market
and the other for international market.
TABLE 2: Product strategies used by the craft business respondents.
Product differentiation and associated supply chain cost implications
Respondents
1, 3, 8 and 9 standardise their products across market segments. They
do, however, differentiate their product designs from those of
competitors. Only Respondent 4 makes and sells products that are similar
to those of competitors. Products are made for different customer
groups, including trade customers, tourists, local consumers and the
export market. Respondent 3 produces products similar to those of any
other producer supplying office stationery and interior décor, but most
significantly differentiates her products through the type of raw
materials that she uses, such as the use of sand and recycled materials
(which results in innovative fresh product designs which are popular).
With regards to sand as a raw material, she has gained a competitive
advantage through lowering her cost of raw materials as the sand used is
easily obtainable and obviously very inexpensive to source. She can
therefore charge lower prices than her competitors by simply
substituting one inbound sourced material over another more expensive
one. She also has an advantage through the uniqueness of raw material
(sand), which makes her stand out from her competitors.
Whilst a
number of craft businesses do produce products that are difficult to
copy, there were also certain craft businesses that proactively and
innovatively used recycled materials to produce very good quality
products. The literature review confirms that there is indeed a business
case for utilising green opportunities in the supply chain setting.
Hugo and Badenhorst-Weiss underscore the possible business
opportunities in their discussion entitled 'Greening opportunities
throughout the supply chain'; similarly, Iannuzzi also has a
pertinent discussion on 'green and healthy product design factors' and
how waste can be effectively used to make money in innovatively designed
products.
Use of brand names and unique design features in the product design process
Respondent
7 has four brand names, each used specifically for different market
segments. He makes fashion products, traditional clothes, contemporary
clothes, as well as wedding and classical lines for men and women. He
has different designs, including innovative cultural design (African
designs with tribal or cultural styles clearly evident), as well as
modern and contemporary ones, and still manages to customise designs for
different customers. His product assortments vary in terms of colours
used, designs, and sizes and, in addition, he can adapt the product to
customer's specifications. Burt et al. feature an in-depth
discussion on the 'Categories of specifications' and certain of these
specification categories are evident in the product design process of
this crafter.
Respondents 5 and 6 both stamp their products with
their business name and contact details. This is important for repeat
buying as a customer can phone to place an order or refer other
customers to this respondent. Respondent 6 can also adapt his designs to
meet specific needs of customers and customise products for customers.
Products come either in plain colours or in African 'Big Five' animal
designs and he has two different designs: one for the local market and
one for export. Respondent 2 customises his products through the use of
different colours and sizes based on customer's request.
Respondent
4 creates unique designs. He produces interior décor products such as
cases and kitchenware. He has a narrow product assortment: he creates
one design for each product, using the same colour with three different
sizes. Although this helps to distinguish him from competitors, it also
limits his business growth as some of the customer's demand that he sell
to them and not their competitors. With such a narrow assortment and
with exclusive contracts to supply one customer, he might need to
increase his product assortment by adding different colours, which would
free him up from any 'exclusive' agreements and he would obviously then
be able to sell more and make more money.
Retailing and
distribution strategies differ from respondent to respondent (see Table
3). With regard to the availability of products, customers can visit all
of the Respondent's factories or stalls where they can buy and collect
the products. In terms of general transportation to customers, products
can also be delivered to customers, as is the case with Respondents 1,
2, 5, 6, 7, 8 and 9. In terms of outbound transportation of finished
goods, respondents can either deliver personally to customers or courier
the products anywhere in the world. Customers can also buy products at
the various exhibitions in which respondents are involved, from retail
stores selling their products or from the stall in case of Respondents 4
and 9. Various order management systems are used by respondents:
customers can either, (1) phone to place the order, (2) place orders via
email, (3) physically place orders at the exhibition where items are
displayed or (4) visit the factory where items are made. Whilst certain
smaller orders are processed very quickly within minutes (especially at
exhibitions and during factory-visit sales where finished goods are
readily available), it often takes up to 2 weeks for the respondents to
process a large order.
TABLE 3: Dimensions of the supply chain used by the craft business respondents.
Craft
businesses use either their own vehicles or third-party logistics
operators to distribute their products locally and internationally. In
terms of transport modes used and transport infrastructure (vehicles
etc.), only Respondents 2, 5 and 7 have their own transport (one a
delivery vehicle and one a sedan). Respondents 1, 3, 4, 6, 7, 8 and 9
use public transport to deliver products to customers locally and/or
third-party courier companies to ship products internationally via air
transport (unless the package delivered is abnormally large, then sea
transport is occasionally used as it is more cost-efficient).
International customers pay for the courier expenses.
Respondents
often make use of third-party operators for very large local
deliveries. This is expensive and craft producers often lack the
experience and time to source a reasonably priced transport method
locally, often ending up paying far more than what they should (as a
result of their lack of logistics and transport knowledge regarding the
competitiveness of rates charged). As transport is needed as and when a
customer buys, it makes it difficult for them to develop relationships
with the transport suppliers and thereby leverage better rates over the
long term. The lack of development of alliances and healthy
relationships with transporters was evident with most respondents.
All
respondents utilise their own production facilities and storage
facilities or warehousing to create and store their products In terms of
physical production facilities and storage space (warehousing), all the
respondents have their own rented factory space. They use the space for
production, stock keeping and as a sales display area. Only two of the
respondents, 5 and 7, have their own computers and Internet connections
(via 3G), whilst the others access computers at Internet cafés.
Conclusion
What has emerged from the research conducted is that a
significant gap (of supply chain alignment) exists between the creative
and innovative products produced by craft businesses in Gauteng and a
correspondingly creative and appropriate SCM strategy. A number of craft
businesses simply 'grew beyond their boots' and struggled to match
their successful product strategies with their 'not-so-successful' SCM
strategies. This lack of supply chain alignment became even more acute
as the craft businesses grew and required an even greater number of
products to be distributed or sold through outbound channels of
distribution (once successfully produced). Certain craft businesses
interviewed even revealed inbound supply chain weaknesses where the
volume of raw materials, and speedy access to their raw materials
required for production, did not match the actual production targets.
Simply put, they often lacked the appropriate levels of raw materials
needed to make an ever-expanding repertoire of popular products
produced.
Some of the producers in the craft industry copy
products from competitors. As a result, the majority of products are
similar with little differentiation. Those producers who have unique
designs have greater competitive advantages over those who do not. They
are able to differentiate themselves from competitors and to attract
those customers that look for something different in the market in order
to satisfy their individual and unique needs.
In terms of supply
chain and logistics efficiency of the small craft businesses
interviewed, it was discovered that they had very poorly defined and
coordinated logistics systems in general and could either not afford or
utilise transport and storage optimally. The researchers also conclude
that these businesses could easily have made significant savings by
managing their inventory and by forecasting more effectively, by
transporting products more cost-efficiently using longer-term agreements
with either one or fewer suppliers, by optimising inbound supplies in
terms of planning and quantities required, as well as by optimising the
outbound movement of products to international customers.