Aligning Product Strategy to Supply Chain Practices
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?
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.