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Master Thesis Strategic Innovation Management &
Supply Chain Management
The Battle for the Dutch Shrimp
Managing the interplay of complexities in a food supply chain,
including the effects of a process innovation: A multiple case study in
the Dutch shrimp industry
Lianne Wiersma S1966502
lianne-1992@hotmail.com
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stsupervisor: Dr. K.R.E. Huizingh (SIM)
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ndsupervisor: Dr. H. Broekhuis (SCM)
June 20, 2016
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ACKNOWLEDGEMENT
First of all I would thank my supervisors Dr. H. Broekhuis, Dr. K.R.E. Huizingh and Dr. W.G. Biemans for their time, helpful feedback and brainstorming sessions which gave me new insights about my research. I thank Jouke van Dijk from the Waddenacademie for providing me with this interesting topic, exploring the Dutch shrimp industry. I would also like to thank the companies who were willing to participate in this research. Their knowledge, openness, enthusiasm and time were much appreciated and made it possible to generate a rich data set. In accordance, I would like to thank my fellow students; Bouke Krediet and Esmee Heesters which helped me keep a good spirit and provided some helpful tips for finalizing the thesis.
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ABSTRACT
Food Supply Chains (FSC) are known to have more difficulty managing complexities compared to other supply chains. Previous research already provides some strategies which can be used to manage the complexities. Process innovation is another way in which complexities can be handled, completely changing the impact of each complexity, but also the usability of the proposed strategies. While these strategies could provide ways to target single complexities, the intricate interplay between them, especially in a FSC, is much harder to deal with. It is not clear how this interplay is managed in a FSC and how this is further affected by process innovation. Here we try to explore this issue through a multiple case study research, generating in-depth insights about countermeasures for the interplay of complexities. We conclude that process innovation affects the interplay of complexities and strategies both positively and negatively. Furthermore, we found that FSCs make use of a combination of strategies to be in control over the (interplay of) complexities, some of which were deemed detrimental to the FSC due to its specific characteristics.
Keywords: supply chain complexity management – food supply chain (FSC) – strategies – process
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Content
1. INTRODUCTION ... 5
2. THEORY ... 7
2.1. Food Supply Chain ... 7
2.2. Supply chain complexities ... 8
2.3. Strategies used to manage the interplay of complexities ... 10
2.4. Strategies used to manage interplay of complexities in a FSC ... 13
2.5. Process innovations ... 15 3. METHODOLOGY ... 15 3.1. Unit of analysis ... 15 3.2. The Setting ... 16 3.3. Case Selection ... 16 3.4. Case Description ... 17 3.5. Data Collection ... 18 3.6. Data Analyzing ... 20 4. RESULTS ... 21
4.2. Control over the complexities ... 22
4.3. Strategies used to manage the interplay of complexities ... 25
5. DISCUSSION ... 28
6. CONCLUSION ... 30
6.1. Managerial implications ... 30
6.2. Limitations and suggestions for future research ... 31
REFERENCES ... 32
APPENDIX A ... 37
APPENDIX B... 38
APPENDIX C... 40
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1. INTRODUCTION
Supply chains are becoming more and more complex due to customer requirements, intense competition, change of industry standards, and adoption of new technologies (Serdarasan, 2013). Supply chain complexities are defined as “the structure, type and volume of interdependent activities, transactions, and processes in the supply chain that also include constraints and uncertainties under which these activities, transactions and processes take place” (Manuj & Sahin, 2011: 523). In other words, supply chain complexity is caused both by the number of elements and the interrelation between these elements within a supply chain, more so by the unpredictable environment of the supply chain (Manuj & Sahin, 2011).
Complexities in a supply chain may lead to long lead times, unreliability‘s (Frizelle & Woodcock, 1995), inefficiencies (Sivadasan, Efstathiou, Frizelle, Shirazi & Calinescu, 2002; Sivadasan, Efstathiou, Calinescu & Huatuco, 2006), reduced delivery performance (Vachon & Klassen, 2002), inflexibility (Battini, Faccio, Ferrari, Persona, & Sgarbossa, 2007) and ultimately to a supply chain that is difficult to control (Sivadasan, et al., 2006). It is important to manage these supply chain complexities with appropriate strategies (De Leeuw, Grotenhuis, & Goor, 2013). Because supply chain complexity is a phenomenon which only quite recently acquired more attention through research efforts, there are still many gaps in our knowledge to fill. Although researchers have identified possible complexities in a supply chain, research is lacking in terms of manageability of these complexities (Manuj & Sahin, 2011) and how they are influenced by factors such as process innovation.
Here we focus on complexities in a food supply chain (FSC), more specifically the supply chain of Dutch shrimp. This was done due a lack of specific research about the supply chains in the food industry (De Leeuw, et al, 2013), and it is pertinent to distinguish them since complexities can differ across industries (Bozarth et al., 2009). We will focus on three complexities affecting a FSC derived from a recent model by De Leeuw et al. (2013): variability, uncertainty and speed. These complexities are the ones which are most essential to have control over in a FSC (Shukla & Jharkharia, 2013), while at the same time being the ones which are the most difficult to manage. This is mainly due to the characteristics of a FSC: perishability of the raw material and the end product, the highly fluctuating demand and supply of the quantities of the product, and the unpredictability and unreliability of quality, quantity and delivery times (Bozarth, Warsing, Flynn & Flynn, 2009; De Leeuw et al., 2013; Jongen, & Meulenberg, 1998; Meulenberg, & Viaene, 1998; Shukla & Jharkharia, 2013; Sivadasan, Efstathiou, Calinescu & Huatuco, 2004).
6 and supply of the quantities of the product leads to a lot of variability, while the unpredictability and unreliability of demand and supply lead to many uncertainties (Bozarth et al., 2009; De Leeuw et al., 2013; Isik, 2010; Perona & Miragliotta, 2004; Sivadasan et al., 2004). Altogether, this range of complexities (speed, variability and uncertainty) in the supply chain severely increase planning difficulties (Van Wezel, Van Donk, & Gaalman, 2006).
Managing these complexities becomes even more challenging since they are highly interrelated. Both variability and uncertainty affect each other in a negative way, increase of either variability or uncertainty will lead to an increase in the other complexity (De Leeuw et al., 2013; Li, 2007). Both these complexities also negatively affect speed, as they increase the lead time throughout a supply chain (Chen, et al., 2000; Prater, Biehl & Smith, 2001).
Few strategies are described in literature to manage these complexities on both a firm and a supply chain level. The suggested strategies are mostly capable of managing complexities in isolation, and do not account for the interplay of speed, uncertainty and variability. Because of this, there is a need for in-depth empirical evidence proposing strategies that could manage the interplay of complexities in the FSC. To fill this research gap, the central research question ―How can the interplay of complexities in a FSC be managed?‖ should be answered. In order to do so, it is also important to answer “To what extend are the different FSC in control over their complexities?”. Both questions will be investigated with an explorative multiple case study.
Besides the characteristics of the FSC, process innovations are also known to affect both complexities and strategies which are proposed to solve them. Process innovation is a new way of making the same product (Tushman & Anderson, 1986). This is happening at the moment in the Dutch shrimp industry. New players are entering this industry with process innovations, competing against traditional shrimp supply chains. These new players make use of mechanical peeling in the Netherlands instead of peeling by hand in Morocco. These emerging FSC thereby shorten the lead time from months to a couple of days. This obviously affects the complexity of speed, but also the complexities of uncertainty and variability as we show in this research. The product differentiation strategy used by the emerging FSCs is aiming to outcompete the traditional FSC which uses a cost leadership strategy. However, the emerging FSCs still deal with a lot of complexities for it to do so. We would like to answer: “How does process innovation affect the interplay of complexities and used strategies in a FSC?”. With this information, we could answer: “Can the emerging FSC outcompete the traditional FSC?”.
7 Thirdly, this research provides insights regarding the strategies used in the FSC to manage the interplay of complexities. From a practical aspect, this research gives managers of FSC insides in the effects of a process innovation on the complexities and strategies, and provides solutions to manage the interplay of complexities provided by the example of the Dutch shrimp industry.
The rest of the paper is structured as follows: in section 2, relevant theory is discussed. Section 3 explains the methodology. Results are analyzed in section 4, followed by a discussion of the main findings in section 5. Finally, section 6 discusses research limitations, contributions and future research directions.
2. THEORY
In this chapter the variables of the FSC and its underlying relationships are discussed. In paragraph 2.1 we start by elaborating on the characteristics of the FSC, followed by a discussion about the complexities of this particular supply chain in paragraph 2.2. The strategies which are used to solve these complexities will be discussed in paragraph 2.3. In paragraph 2.4 the strategies that manage the interplay of complexities in the FSCs are discussed. We conclude this chapter with the process innovation and its effect on complexities and used strategies in paragraph 2.5.
2.1. Food Supply Chain
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TABLE 1
Characteristics of the FSC Characteristic Factors
Product - Perishability of the product.
- Raw material varies in supply, quality and price due to unstable yield of farmers or fishermen.
- Volumes and weights are used, rather than discrete units.
Plant - Single purpose capital-intensive machinery coupled with small product variety and high volumes.
- Long (sequence-dependent) set-up times between different product types.
Production process - At least one of the processes deals with homogeneous products, which are natural raw materials.
- Production rate is mainly determined by capacity.
- Food industries have a divergent product structures (byproducts or different packages sizes).
- Due to uncertainty in pricing, quality, and supply of raw material, several recipes are available for a product.
- Processes have a variable yield and processing time.
- FCS that produce consumer goods can have an extensive, labor-intensive packaging phase.
(adapted from Van Donk, 2001).
2.2. Supply chain complexities
Supply chain complexities are processes and activities preformed in a supply chain that include constrains and uncertainties (Majun & Sahin, 2011). Consequently, not managing these complexities properly will be detrimental for the supply chain‘s performance.
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TABLE 2
Overview of supply chain complexities
Complexity Definition demand-side Definition supply-side Characteristics of the FSC
Variability Fluctuations in quantities over time on the demand-side.
Fluctuations in quantities over time on the supply-side.
Raw material varies in supply and quality due to unstable yield of farmers or fishermen.
Uncertainty Unpredictability and unreliability in quantities and delivery times of demand.
Unpredictability and unreliability in quantities, quality and delivery times of supply
Raw material varies in supply and quality due to unstable yield of farmers or fishermen.
Speed Required responsiveness across the supply chain in terms of delivery times on the demand-side
Required responsiveness across the supply chain in terms throughput time on the supply-side.
Perishability of the product
(definitions adapted from De Leeuw et al., 2013).
The complexities are highly interrelated. The variability in demand is a well-known problem for the occurrence of the bull-whip effect (De Leeuw et al., 2013; Li, 2007), which causes fluctuation at both the demand and supply volumes throughout the supply chain (Isik, 2010; Chen, Ryan & Simchi-Levi, 2000). The bull-whip effect stems from the unpredictability and unreliability of the quantities and delivery times, e.g. inaccuracy of the demand forecast (De Leeuw et al., 2013). Meaning that the variability on the demand-side or supply-side increases the uncertainty. Therefore, the less variable the supply and sales patterns are, the better activities can be planned throughout the supply chain without peaks, making the supply chain less complex (De Leeuw et al., 2013). The uncertainty can also increase the variability. When the forecasts of demand and supply are highly uncertain, this affects the fluctuations in quantities in the supply chain (Li, 2007). So, improving forecasts and delivery reliability performance gives control over the variability in the supply chain (De Leeuw et al., 2013). In other words, managing uncertainty will directly affect variability positively and managing variability will directly affect uncertainty positively.
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+
+
+
+
performance and fluctuations in the quantity supply are known to reduce the speed in the supply chain (De Leeuw et al., 2013).
Because all complexities are interrelated, managing one complexity can also positively affect other complexities. However, when the complexities increase, they can also decrease the effect of other complexities on the FSC (Figure 1).
FIGURE 1
Interplay of complexities at the demand-side Interplay of complexities at the supply-side
2.3. Strategies used to manage the interplay of complexities
In this section different strategies that deal with the previously mentioned complexities are discussed (Table 3). Some of these strategies are used to manage more than one complexity in the supply chain. After discussing all the strategies, we will discuss in 2.4 which strategies can be used for the FSC.
TABLE 3
Overview of the different strategies to manage complexities in a supply chain Strategy Complexity demand-side Complexity supply-side
Keeping inventory Variability, uncertainty and speed Variability and uncertainty Excess capacity Variability, uncertainty and speed Variability, uncertainty and speed Flexible resources Variability, uncertainty and speed Variability, uncertainty and speed Outsourcing activities Variability, uncertainty and speed Speed
Communication and information exchange
Variability, uncertainty and speed Variability, uncertainty and speed
Multiple suppliers - Variability, uncertainty and speed
Relationship management
Variability, uncertainty and speed Variability, uncertainty and speed
Vertical Integration - Variability, uncertainty and speed
Market segmentation Variability and uncertainty - Postponement Variability and uncertainty -
-
-
-
-
Variability Uncertainty Variability Uncertainty
11 Keeping inventory
Keeping inventory is most suitable to manage all three complexities (De Leeuw et al., 2013; Cachon & Terwiesch, 2009; Vorst, Beulens, Wit & Beek, 1998). This strategy is defined as buffering before or after processing for a period of time. The uncertainty in quantity, quality and delivery times, and the fluctuations in quantities can be managed by inventory keeping, giving the supply chain the possibility to respond in a fast manner to a consumer‘s demands (De Leeuw et al., 2013). Keeping inventory does however increase the throughput time on the supply-side (Cachon & Terwiesch, 2009), negatively affecting the speed at the supply-side.
Excess capacity and flexible resources
Excess capacity is another strategy which can be used in the supply chain to manage all three complexities (Vorst, et al., 1998). Excess capacity is defined as a situation in which the actual production is less than what is achievable or optimal for a firm (Cachon & Terwiesch, 2009). Excess capacity makes use of slack resources instead of keeping inventory to shorten the lead time, increasing the speed at both demand and supply-side (Chapman & Carter, 1990). This allows them to respond to different requests fast, when for example the supply or demand increases due to fluctuations or unpredictability of the supply chain. When the supply chain needs to rotate more shifts or use extra machines they are in need for a flexible workforce. Therefore, flexible resources support the strategy excess capacity. Having a flexible workforce is important to handle the variability and uncertainty in both supply and demand during busy periods (Lai & Baum, 2005). This also benefits the speed directly.
Outsourcing activities
12 Multiple suppliers
Multiple suppliers is defined as an accessibility to a broad supply base where all suppliers are used at the same time. Having multiple suppliers will secure enough supply, even in busy periods (variability demand-side) (Zeng, 2000) or when other suppliers become less reliable (Minner, 2003). Throughput times are also managed by multiple suppliers, as they reduce the need to hold an inventory (Minner, 2003).
Communication and information exchange
Communication and information exchange is defined as the availability of accurate data and joint decision making. This strategy can be used to manage uncertainty between supply chain partners (Costantino, Di Gravio, Shaban, & Tronci, 2015; De Leeuw et al., 2013), because it mitigates the bull-whip effect (Skjøtt-Larsen et al., 2007). By mitigating the bull-bull-whip effect it also has positive effects on the variability on the demand-side. Furthermore, using communication and information exchange helps the supply chain to make quicker decisions (Manuj & Sahin, 2011) thus increasing the responsiveness of throughput and delivery times.
Relationship management
Relationship management aims to create a partnership between two organizations rather than considering the relationship as merely transactional. Relationships create trust and transparency, which reduces uncertainties and variability in both demand and supply by creating a supportive environment (Cox, 2004; Manuj & Sahin, 2011; Naudé & Buttle, 2000). Moreover, having relationships can decrease the lead time between different partners (Perona & Miragliotta, 2004), because it increase the responsiveness in the supply chain.
Vertical integration
Vertical integration is used to manage the uncertainty and variability on the supply-side (Kouvelis & Milner, 2002). This strategy relates to the extent in which various entities (buyer and supplier) of a supply chain work together and share knowledge to perform activities in-house (Chen & Huang, 2007). By sharing knowledge, the predictability and reliability of supply can increase, which reduces uncertainty. Furthermore, vertical integration also creates a possibility to increase the speed by decreasing the need for coordination within the supply chain, which subsequently decreases the lead times (Richardson, 1996).
Market segmentation
13 uncertainty and variability through creation of a stable demand. The sales forecasts become more accurate because the supply chain can track and exchange information for a specific market or customer group (Majumdar & Ramaswamy, 1995; Panagopoulos & Avlonitis, 2010).
Postponement
Postponement is defined as “delaying activities in the supply chain until real information about the markets is available” (Yang & Burns, 2003). Postponement manages the uncertainty (Prater, et al., 2001; Van Hoek, 1998; Weng & Parlar, 1995) and variability at the demand-side (Ernst & Kamrad, 2000; Van Hoek, 1998). When customer demands become less predictable, using postponements reduces the uncertainty of the forecasts (Van Hoek, 1998). This also creates less variability on the demand-side (Ernst & Kamrad, 2000; Van Hoek, 1998). It is however very apparent that this strategy reduces the speed in the supply chain. Delaying activities for better information means that the products cannot be delivered to the customer right away (Van Hoek, 2001).
2.4. Strategies used to manage interplay of complexities in a FSC
Due to its characteristics, not all strategies mentioned in 2.3 are applicable for a FSC. In this paragraph we explain which strategies can be used, and how a combination of strategies could solve the intricate interplay of complexities in the FSC (Table 4).
TABLE 4
Overview of the different strategies to manage complexities in FSC Strategy Complexity demand-side Complexity supply-side
Keeping inventory Variability, uncertainty and speed Variability and uncertainty Excess capacity Variability, uncertainty and speed Variability, uncertainty and speed Flexible resources Variability, uncertainty and speed Variability, uncertainty and speed Outsourcing activities Variability, uncertainty and speed Speed
Communication and information exchange
Variability, uncertainty and speed Uncertainty (only quality and delivery times) and speed
Multiple suppliers - Variability, uncertainty and speed
Relationship management
Variability, uncertainty and speed Uncertainty (only quality and delivery times) and speed
Vertical Integration - Uncertainty (only quality and
delivery times) and speed Market segmentation Variability and uncertainty -
14 In paragraph 2.3 it was mentioned that keeping inventory has a negative effect on the speed at the supply-side in terms of throughput times. The use of an inventory is further complicated by the perishability of the product (Van Donk, 2001). Other strategies are therefore necessary if the FSC wants to improve the total lead time. Excess capacity is a good alternative for keeping inventory if you want to manage both uncertainty and variability but also improve the speed. In combination with flexible resources, the FSC can buffer against uncertainties and variability caused by nature of the product (Manuj & Sahin, 2011). Excess capacity is however rather expensive because of the single purpose machines and plants in the FSC (Van Donk, 2001). In paragraph 2.3 is already showed the benefits of having multiple suppliers. However in FSC it could be necessary due the unstable supply of raw material by farmers and fishers (van Donk, 2001).
Communication and information exchange, relationship management and vertical integrations are all strategies to improve the communication flow and responsiveness in the supply chain. These are all soft management skills, meaning that they cannot influence the variability or uncertainties in quantities at the supply-side if these are out of control of the supplier due to the nature of the product (Van Donk, 2001). These strategies are therefore only capable of managing the uncertainty in quality and delivery times at the supply-side, and the speed at both the demand and supply-side to some extent. Outsourcing activities and market segmentation strategies are both good ways to improve variability and uncertainty at the demand-side which also applies for a FSC. Using outsourcing activities to improve the speed may be highly necessary in the FSC due the perishability of the product (Van Donk, 2001).
Postponement cannot be used to manage the complexities in a FSC, mainly because of the perishability of the product, and due the single purpose capital-intensive machinery which do not favor decoupling the production process in multiple stages (Van Hoek, 1999). The short and flexible lead times, needed in a FSC, makes it difficult to perform time-consuming final process activities within the delivery times (Van Hoek, 1999). Furthermore postponements is mostly used to do mass customizations, but products in the FSC consist mostly of homogeneous products which do not need customizations (Van Donk, 2001; Van Hoek, 1999).
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2.5. Process innovations
Process innovations can change the playing field in an industry by making some complexities more important and having more control over other ones. Tushman and Anderson (1986) define process innovation as follows: ―the product remains essentially unchanged while the process by which it was made was fundamentally altered”. Process innovation does not only influence the company, but also greatly affects the partners in the supply chain (Cassivi, 2006, Davenport, 2013). In this study we focus on the influences of process innovation on a supply chain level. Normally, supply chains need to make trade-offs between different parameters such as costs, quality and lead time. For example, processing the shrimp in the Netherlands by hand will improve the lead time, but also increases the costs due to the high wages in the Netherlands. A process innovation can change the relationships between the parameters, weakening or completely breaking them (Zairi, 1999). So, process innovations are capable of achieving major reductions in process costs or lead time and major improvements in quality, flexibility or other business objectives (Davenport, 2013). This implies that they can improve the lead time in the supply chain, and create a responsiveness and flexible supply chain (Naim & Barlow, 2003). Process innovation can hereby also affect the complexities in the FSC.
Besides affecting the complexities, process innovation also affects the strategies that manage the complexities. According to Schroeder (1990) a process innovation gives opportunities to create excess capacity, new relationships with suppliers or customers or new market segments. Naim and Barlow (2003) also stated that it could reduce inventory keeping. Therefore process innovations can create opportunities to use strategies which could not be used before or even make some strategies obsolete.
3. METHODOLOGY
The aim of this research is discovering how one can manage the interplay of complexities in a FSC and how process innovations can already affect the complexities and used strategies. Because relatively little is known about this issue we conducted a multiple-case study. This method is best suited for an in-depth analysis of practices managing the interplay of complexities in a FSC, while at the same time showing how process innovations can affect this (Yin, 2009). Use of multiple cases increase the high explanatory power of the rich descriptions provided by each individual case (Eisenhardt, 1989), thereby increasing generalization of the study (Voss, 2009). Only three cases were studied because of the industries small size, unwillingness to cooperate and a limited time to gather and analyze data.
3.1. Unit of analysis
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3.2. The Setting
The Dutch shrimp industry is an interesting industry for this research as this industry is exposed to new players introducing a differentiation strategy together with process innovations. This is already happening, as we see new FSCs that challenge existing ones by this combination as early as 2011. At the moment the Dutch shrimp industry consist of two major players who, with their FSCs, control 80% of the Dutch shrimp industry. They make use of the cost leadership strategy. The remaining 20% consist of multiple small players. From this group, two players make use of a product differentiation strategy together with process innovations, namely shrimp peeling machines. Because of the process innovation and the product differentiation strategy, new players have to use a different combination of strategies to manage their unique interplay of complexities in the FSC. These new players provide combinations of strategies which was not possible or desirable before in the Dutch shrimp industry. The Dutch shrimp industry gives us the opportunity to compare different strategies used to manage complexities relevant to the emerging and traditional FSCs.
3.3. Case Selection
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TABLE 5 Case criteria Case Generic strategy to create
competitive advantage
Process innovation Use of unconventional strategies to manage interplay of complexities
Case A Costs leadership No No
Case B Differentiation strategy Yes Yes
Case C Differentiation strategy Yes Yes
3.4. Case Description
Table 6 shows the descriptions of the different cases and Appendix A shows the visualization of processes in the FSCs. Case A is a traditional FSC making use of a cost leadership strategy. To achieve the cost leadership, a FSC needs to keep its costs low and control their operational expenses (Porter, 2011). This is mainly achieved through bulk buying, offering higher volumes of standard products and spreading the fixed costs over a large number of units to create an economy of scale (Porter, 2011). Bulk buying and keeping high volumes requires that the FSC holds the product in an inventory, before it can be sold to the customer. The traditional supply chain therefore holds an inventory, but also keeps the costs low by processing the shrimp by hand in Morocco. Together this gives a long lead time for the shrimp (Appendix A). Case A has contracts with multiple suppliers who supply ones a week and twice a week during the high season. The raw materials are bought by the distributor and they freeze the shrimp until they can be peeled in Morocco by hand. The peeled shrimp is conserved and kept in cooling storage until they get sold to the customer in Germany, the Netherlands or Belgium.
18 Case C is highly similar to case B. It also achieves a product differentiation strategy by the use of peeling machines and has the same process steps in the FSC (Appendix A). Case C differs mostly because it gets supplied by seven Dutch contract suppliers, and one of the suppliers has a process innovation. This boat has a new way of processing onboard which results in shrimp that does not need any sieving onshore, thereby skipping one process in the FSC (Appendix A).
TABLE 6
Description of the different cases Case Establishment of
the supply chain
Kilos of peeled Dutch shrimps per year
Main market areas Main suppliers (Amount of suppliers) Lead time Case A 1990 +/- 10.400.000 Germany Netherlands Belgium German (120), Dutch (43), and Danish (8) fishermen +/- 14-90 days
Case B 2011 Current situation: +/- 312.000
Aspired situation: +/- 2.600.000
Netherlands Belgium
Mostly Dutch, some German and Danish
fishermen (15)
2-14 days
Case C 2012 +/- 52.000 Netherlands Dutch (7) fishermen 2-14 days
3.5. Data Collection
The main source of data were semi-structured interviews with the managers throughout the whole FSC. These included; managers responsible for the supply of the product (supplier), processing of the product (processer), and sales of the product (distributor). These managers are all working for different firms in the supply chain. Multiple interviewees per case was chosen in order to reduce response bias, increase reliability and increase richness of the data by getting different perspectives throughout the supply chain (Voss, 2009). Interviewees were selected based on his or her expected knowledge about the complexities that their FSC faces and its strategies to deal with these complexities. The functions and the nature of the companies of the interviewee, observations, and additional secondary data related to each case is shown in Table 7. Additional background information was derived from online reports, company websites, news articles and observations at different companies (Table 7). These additional data sources were used to achieve reliable historical data and enhanced data triangulation. This helped improving the content validity of this study (Voss, 2009).
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TABLE 7 Data Sources
Case Key informants for interview Observations and secondary data
Case A - Manager of the fish auction - Manager of the fish auction
- Sustainability manager of company doing distribution, processing, packaging and transporting.
(n=3)
- Observation of the sieve station to see the different process steps
- Power point of the company about different process steps - Website of the distribution company about their products
process steps and related partners. - Online public reports:
Feasibility of a more sustainable peeled Dutch shrimp Facts about the fluctuations per year of the Dutch shrimp - News article about strategies used to manage variability Case B - Fisher
- Manager of the fish auction - Manager of the fish auction - Director of processing company
- Director of distribution and packaging company - Owner of sales company
- Director of distribution company
- Import and export manager of company doing distribution, packaging and transportation - Commercial manager of transportation company
(n=9)
- Observation of the sieve station to see the different process steps
- Websites to discover more about their products, process steps and their partners:
Processing company Distribution companies - Online public reports:
Feasibility of a more sustainable peeled Dutch shrimp Facts about the fluctuations per year of the Dutch shrimp - News articles about the peeling machines and expanding
the capacity Case C - Manager of the fish auction
- Quality manager of a company doing distribution, processing and packaging
- Commercial manager of transportation company - Import and export manager of a company doing
distribution, packaging and transportation
- Observation to see the different process steps: Observation of the sieve station
Observation of the peeling process Observation on the shrimp boat
- Websites to discover more about their products, process steps and their partners:
Processing company Distribution companies - Online public reports:
Feasibility of a more sustainable peeled Dutch shrimp Facts about the fluctuations per year of the Dutch shrimp - News articles about the peeling machines and new way
of processing on the boat
20 parts were missing, thus increasing the reliability of the data. The interviews were recorded and transcribed in an effort to compensate for the lack of multiple researchers. This gives the researcher a chance to re-hear the interview and find elements which were overlooked during the interview. To increase the construct validity of the research (Yin, 2009), the interviewees were asked to review the quotes and transcripts derived from their interview. Dutch is the native language of the interviewees. The interview was therefore in Dutch in order to encourage interviewees to give in-depth and extensive answers or stories. This generates data as rich and complete as possible. Data was carefully translated to English for the final report.
3.6. Data Analyzing
The interviews were analyzed by data reduction, data display and conclusion (Miles and Huberman, 1994). Firstly, the data was reduced by transcribing parts of the interview that may be of relevance for this study. Then, first-order codes were assigned to the text. All individual cases were coded by the scheme in Appendix C. The first-order codes were labeled with second-order themes to summarize and categorize the data. Afterwards, this was extended with aggregate dimensions for in depth analysis. Both second-order themes and aggregate dimensions was already deductively derived from the theory. The cases were analyzed based on the patterns within the data (Karlsson, 2009).
With-in case analysis
Analysis of the data started by with-in case analysis to “cope with the deluge of data” (Eisenhardt, 1989: p. 540), namely analyzing the coded interviews and documentation of each case separately. The codes were related to second-order themes. From each quote it could be derived to which complexity it was related and if it was supply or demand-sided. Therefore, the codes were related not only to the different second-order themes which are the different strategies used, but also to the aggregate dimensions. These aggregate dimensions are the complexities on both the supply and the demand-side. In this way it becomes clear how the complexities are managed by the different strategies. The coding tree can be found in Appendix C, showing that the process innovations affect the complexities and strategies used, and different combinations of strategies are used to manage the complexities.
Cross-case analysis
21 are used to manage them. In order to display different levels of control over the complexities by each case, a grading system was used ranging from ´not in control´ to ´in control´ (1-3) compared to other cases. For example case A receives a ‗1‘ for the complexity speed, meaning that case A has no control over this complexity compared to the cases B and C. These grading systems can be found in the results.
4. RESULTS
This chapter shows the main findings after analysis of the data obtained by the semi structured interviews. In paragraph 4.1 we will show how process innovations like automatic peeling affects the three main complexities and the used strategies in a particular FSC. Paragraph 4.2 discusses the control over the complexities for all three cases, from which two use the mentioned process innovation. Paragraph 4.3 discusses the multiple strategies used by each case for managing the interplay of complexities.
4.1. Process innovations effects on complexities
Process innovations have an influence on the complexities in a FSC. By making use of process innovations some complexities become more difficult to manage, while others get easier to control in the FSC. Here we see how the process innovation of a peeling machine influences both the complexity of speed positively and the complexity uncertainty negatively. The process innovation introduced by one of the suppliers, which have a new way of processing on the boat (Appendix A), is left out of this analysis. Because, this process innovation caused that these shrimp are not yet able to be peeled by the machines.
The new players try to gain a competitive advantage by using the generic product differentiation strategy. While utilizing the product differentiation strategy, it became important that they differentiated on the quality and freshness of the product. This can be achieved by reducing the lead time. Reducing the lead time made the complexity speed more important in the Dutch shrimp industry. The process innovation in the form of a peeling machine overcame this issue. The new players from both Case B and Case C mention this innovation on their website. Case B said: “These shrimp are peeled in-house with our shrimp peeling machines which are developed and patented by ourselves”. Case C mentions on their website that “Dutch shrimp are peeled in the Netherlands with ultramodern peelers”.
22 shrimp, and in the spring there may be excess capacity”. Secondly, it makes inventory keeping obsolete at the supply-side, because they cannot peel shrimp which has been frozen. This was emphasized by the fisher of case B: “If you freeze unpeeled shrimp it becomes very difficult to peel them mechanically”. Together, this resulted in reduced lead times and geographically dispersion, while extra processing steps were removed (Appendix A). However, increasing the speed makes them more vulnerable towards uncertainty of quantities and variability at the supply-side. Because, uncertainty of quantities and variability at the supply-side are out of control of the supplier (see 4.2.). Not only makes the process innovation the FSC more vulnerable to be in control over these complexities. The process innovation also makes the uncertainty of the quality more important. The director of the processing company of case B said: “Not all shrimps meet the requirements for us. We have an interest in good quality in freshness, temperature and treatment on board”. The peeling machines have specific quality requirements for the shrimp in order to peel them.
Concluded, process innovation have completely control over speed, but make them more vulnerable over the uncertainty and variability at the supply-side. Therefore other strategies then the strategies used by the traditional FSC are needed to control the uncertainty and variability at the supply-side in the FSC without compromising speed. The next paragraph shows how much control each case has over their complexities in the FSC, keeping in mind that case B and C make use of process innovations.
4.2. Control over the complexities
The cases are exposed to the same complexities due the characteristics of the FSC. Because of the process innovation mentioned in 4.1, case B and C will have more or less control with each of the complexities relative to case A. Each complexity is separated by supply and demand because the FSC is controlled differently at both sides.
Control over the complexities at the demand-side
Figure 2 shows case A having control over all the complexities at the demand-side, while both case B and C have difficulties to control variability.
FIGURE 2
Control over the complexities on the demand-side
1 2 3 Variability Uncertainty Speed Case A Case B Case C
23 All the cases experience the same fluctuations in quantities at the demand-side, which is explained by the director of the distribution company of case B “The traditional holidays, in particular Easter and Christmas are peak moments. Furthermore, when the weather is really nice and temperature soars, you see that the demand is increasing tremendously”. The demand variability is further complicated on the supply-side which knows a high season in the late summer and autumn. Because the demand is highest during December and spring (Instituut voor landbouw- en visserijonderzoek (ILVO), 2014), one must have strategies to control the unequal seasonal pattern of the supply and demand. The freshly peeled shrimp from Case B and C have difficulties in this area, because of the increased speed. Therefore they are sometimes forced to sell a no to the customer on the daily freshly peeled shrimp during peak moments on the demand-side. This is acknowledged by the director of the distribution and packaging company of case B; “If there is more demand, but we cannot meet the demand, we sell a NO to the customer”.
Each case is largely in control of uncertainty, because they can make good demand forecasts. The import and export manager of both case B and C said: “…actions are of course more difficult, but you can make clear forecasts in that. There are a lot of smart people who have years of experience in this by using computer systems and so on, making it so easy to predict demands”. Uncertainty is further inhibited by the reliability of delivery times towards the customer. They deliver on fixed days every week but are also capable of delivering multiple times a day. The owner of the sales company of case B said: “We deliver always on Mondays and Thursdays to Hanos. The other companies can always order from Monday till Friday in the morning and they know that the shrimp will be delivered in the afternoon or day after tomorrow depending on transport”.
The speed complexity on the demand-side is also relatively controlled for each case, where all cases are able to delivery daily. For example, the sustainability manager of case A stated: “we deliver shrimp every day to some distribution centers”.
Control over the complexities at the supply-side
24 1 2 3 Variability Uncertainty Speed Case A Case B Case C FIGURE 3
Control over the complexities on the supply-side
Variability at the supply-side is present in all cases due the nature of the product. As mentioned, all cases have to deal with seasonal fluctuations on the supply-side. This is also acknowledged by several managers in interviews, for example by the manager of the fish auction of case B and C. He said the following about the supply of shrimp: "Normally from January to early April it is bad. Then it blooms briefly from April to May, and then it collapses again. Strangely enough, it starts again in mid-June”. Case A is able to control the variability, but case B and C are subsequently less in control over the variability. Therefore they are still dependent on the traditional supply chain when there is more supply than demand (Appendix A). This is explained by the quality manager of case C “If there is more supply than demand, then we freeze them, this is about the shrimp that we sent to Morocco”. These shrimp cannot be sold as the daily freshly peeled shrimp, but sold as normal shrimp.
Case A largely controls the uncertainty, because they do not depend on the weekly uncertainty in the quality, quantity and delivery of raw material. Case B and C are heavily influenced by these uncertainties every week, giving them difficulties controlling the uncertainty complexity. They rely on higher quality fresh shrimp, which need to meet specific requirements due to the process innovation explained in 2.5. This makes them highly susceptible to the uncertainty complexity, as the desired short lead times are also depending on both the delivery times of the raw material and the quantities delivered each time. This frequently results in problems. The quality manager of case C said: “With Christmas and New Year, when there are storms, fishermen say: “I am not going to fish for two days, not even for you”. Because they will not go, we have no shrimp to peel and thus no shrimp”. The total quantities delivered are also uncertain. The manager of the fish action of all cases mentions: “It depends on many factors. So making any predictions does not really work. For example, you can get little information if one has unloaded, then you know a bit what the others will bring tomorrow. But that is an estimation which can only be made if you already have some”.
Case A on the other hand cannot deal with the complexity speed on the supply-side, because they cannot promise a fast throughput time of the shrimp. They do not aim to control this complexity,
25 because this is not within their cost leadership strategy. Case B and C do aim for a fast throughput time because of their product differentiation strategy, and need to be in control of this complexity. According to the director of the distribution company of case B they are already largely in control over the speed: “The most rapid scenario is that it takes two days after the catch to get the shrimps in the store, which is most favorable. In practice, it will be in the store after three to four days”.
4.3. Strategies used to manage the interplay of complexities
The previous paragraph showed the control for each case over the three complexities. This paragraph will show which combination of strategies are used to achieve this control over the interplay of complexities. Again, we will look at the different strategies for complexities on both the demand and supply-side.
Managing the complexities at the demand-side
From the previous paragraph it became clear that all cases have good control over uncertainty and speed, where only case B and C have problems controlling the variability complexity. There is however no strategy which can be used by case B and C to overcome the variability if they still want to control speed on both supply and demand (Table 8). This is due to the interplay of speed on variability in which high variability causes an increase in the lead time. Only the traditional FSC is capable of keeping inventory in combination with flexible resources. Outsourcing activities and communication and information exchange has no influence on variability.
Case A makes use of a combination of keeping inventory and flexible resources to manage the variability (Noordblog, 2016; CREM, 2014). This is also stated by the sustainability manage of case A: ―we must store peeled products in cold storage rooms in order to deliver large amounts of shrimp during Easter and Christmas”. Keeping inventory also manages the potential uncertainties and the speed at the demand-side, because FSC can directly respond to different customer requests.
TABLE 8
Strategies used to manage the complexities per case on the demand-side Strategy: Variability Uncertainty Speed
Keeping Inventory A A, B, C A, B, C Flexible resources A B, C A, B, C Outsourcing activities - B, C B, C Communication and information exchange - A, B, C A, B, C
26 Communication and information exchange is an important strategy, giving the FSC an opportunity to know how much inventory and flexible resources are needed. This is important for all cases in order to manage the uncertainty and speed on the demand-side. Exchanging information throughout the FSC by making use of computer systems creates the ability to make forecasts (see 4.2.). Furthermore, by using communication and information exchange, FSCs are capable to make arrangements about the desired delivery times towards the customer. For example, the director of the distributor company of case B stated: ―Dutch shrimps are in theory a chilled product, which need to be delivered daily or at least a lot more frequently than we do today with frozen products. We will arrange this together with the customer”.
Every customer desires different delivery times. To provide a fast delivery service, case B and C are depending on outsourcing activities and keeping inventory for a short time. Both case B and C are outsourcing the transport to several companies as highlighted on their websites. The quality manager of case C said: “The distribution is done by several transport companies, who do three pick-up rounds each days, 24 hours a day”, further enforced by the commercial manager of the transportation company of case B and C “Daily 7/7.(…) Our good logistics network ensures that the product arrives on all destinations within 24 hours”. Short term inventories are used to deal with minor uncertainties about quantities. The director of the processing company of case B said: “A small potential stock is detained, but not for a long time because it is a fresh product”.
Managing the complexities at the supply-side
Table 9 shows that case A uses the same strategies to manage the supply-side as they do with the demand-side. While case B and C use a large variety of strategies to manage the supply-side. As mentioned above, case B and C has difficulties to control both the uncertainty and variability because of the increased speed.
TABLE 9
Strategies used to manage the complexities per case on the supply-side Strategy: Variability Uncertainty Speed
Keeping Inventory A A - Flexible resources A, B, C A, B, C B, C Excess capacity B, C B, C B, C Outsourcing activities B, C B, C B, C Communication and information exchange - A, B, C B, C Multiple suppliers - A, B, C B, C Relationship management - B, C B, C
27 Inventory keeping by case A on the supply-side creates a continuous flow to Morocco circumventing the need for excess capacity according to the sustainability manager of Case A: “The market should flatten the fickleness of nature. We freeze one quarter to one third of the shrimp. During autumn there is so much shrimp that we are forced to freeze it. We cannot send it to Morocco, because we only have a limited capacity of shrimp peeling woman. (…) We try to supply a constant stream of shrimp for the amount of women working in Morocco for our company”.
Case A uses multiple suppliers to manage the uncertainty of the quantities delivered by the suppliers. Uncertainty arises of quantities and delivery times, because not all fishermen are catching shrimp constantly. The manager of the fish auction for all cases said: “This gives steadiness for the distributor. You have an app where you can track all the ships on the water. As a distributor you know which ships are yours. For example, let’s say you can see twenty ships at sea which catch a ton on average during the week. As a distributor you will think “I can be certain that I get this amount of shrimp”. And if this is not the case, you need to make sure that you by extra through the clock (fish auction)”.
Case B and C cannot make use of keeping inventory on the supply-side due their need of control over the speed complexity and due the process innovation. However, the process innovation provides excess capacity which is explained in paragraph 4.1. A combination of excess capacity and flexible resources is needed to manage all the complexities. When the supply increases due to an unexpected large amount of raw material they are able to respond to this fluctuation with their flexible resources and excess capacity. This is explained by the quality manager of case C “When more shrimp arrives than we can process we work longer hours, and work with an extra team”. These strategies also benefit speed in the FSC.
28 company of case B said: “To put unpreserved shrimp on the market, the shrimp should be onshore faster. This requires a good interaction between the fisherman, our processing company and the market”. Another way of creating a tight bonds with a fisher is to give the fishermen partly ownership of the peeling machines. Hereby you make them responsible for the whole process. The quality manager of case C said: “One fisher is also a shareholder in the peeling machines, he is invested on the account that his shrimp can be peeled on the peeling machine. Therefore, better cooperation and much consultation is done about how can he deliver the best possible shrimp”. If a relationship is not created with these options, it is also possible to outsource activities. For example outsourcing the sales to the fisher. A fisher of case B said: “Our company is split up, I do the fishing with the boat. (…) Then we let them peel and package the shrimp. From this moment my wife takes over to sell the shrimp”.
The communication and information exchange between the different parties in a supply chain is necessary to manage the uncertainty (case A, B & C) and required speed (case B & C). This can be achieved by having regular contact with the fisher: “Every Tuesday morning we have contact about how things are going with the fishery. If it gets any better or stays the same, we know approximately what is going to happen next week” (source: manager of the fish auction of case A and B). Moreover, they also have contact every day with the distributors about the quantities of supply and when the fishermen arrive, as explained by the manager of the fish auction in all cases: “In the morning between eight and nine we usually have a list of what is coming. Then we will inform the distributors about the amount of shrimp that is coming and when it is ready”. Communication and information exchange is a supporting strategy to create a responsive and smooth FSC.
5. DISCUSSION
Here we set out to elucidate both the effects of process innovation on the FSC of shrimp and gain information about the ways in which companies solve the interplay of the complexities speed, uncertainty and variability in their supply chain. Process innovation controls the complexity of speed for the emerging supply chains, but resulted in less control over the uncertainty and variability at the supply-side. The negative effects of the process innovation contradict the findings by Davenport (2013) and Naim and Barlow (2003), which only report positive effects.
29 perishability of the product (Van Donk, 2001). For the shrimp industry this seems to be the only way to completely manage uncertainty in quantities and the variability at the supply-side year round.
Serdarasan (2013) acknowledges that a supply chain has little if any control over external drives such as environmental factors. Therefore supply chains need to make tradeoff between vulnerability towards these complexities and supply chain agility (Prater, et al., 2001). The agility, determined by the way in which the supply chain configures to incorporate speed and flexibility, can be used to relax the issues of uncertainty and variability to some extent (Prater, et al., 2001). The emerging FSC change the agility for the better, although it is rater expensive because of the excess capacity of the machines that are used for a single purpose in FSC (Van Donk, 2001).
Even if the FSC cannot become completely agile, it can use combinations of strategies to improve it. By creating relationship management, and having communication and information exchange with multiple suppliers, and outsourcing activities in the FSC. This ads to the findings of Zeng (2000) and Minner (2003) that not only multiple suppliers are important to secure your supply and required throughput times, but that this can be further improved by building up a relationship with these suppliers. In contradiction with Kouvelis and Milner (2002), we observe that outsourcing activities to suppliers are great ways to improve the agility of the FSC. They suggested that vertical integration is more appropriate at the demand-side, because the supply chain wants to keep control over their suppliers to reduce the uncertainty (Kouvelis & Milner, 2002). This study indicates that by making suppliers responsible for certain activities further up the supply chain reducing the uncertainty and increase the speed. Outsourcing activities to the supplier creates a situation in which the supplier feels more responsible for what is happening further up the supply chain. Dubois (2003) also shows the importance of relationships with suppliers and outsourcing activities to suppliers, so FSC can implement different management concepts and techniques to improve the uncertainties and speed at the supply-side. For example just-in-time (JIT) or total quality management (TQM) (Dubois, 2003).
30 Because of the negative effects of the process innovation on uncertainty and variability that can only be partly solved, both FSCs (emerging and traditional) need to coexist in order to answer the demand year round. This creates a situation in which there are two products on the market; one product which has mechanically peeled fresh shrimp and shrimp peeled by hand in Morocco. If they wish to depend solely on the new FSC, case B and C need to invest in process innovation and make improvements in the peeling machines to control over uncertainty and variability. One example is for them to invest in the possibility to peel frozen shrimp. When frozen shrimp can be peeled, inventories can be kept on the supply-side, giving the emerging FSC complete control over variability and uncertainty. This again creates a situation with two products on the market, one product with a short lead time and branded as daily freshly peeled shrimp, and one product peeled by machines with a long lead time. The latter will replace the shrimp in case B and C which is now processed in Morocco.
6. CONCLUSION
In the research we show the importance of having a combination of different strategies to manage the complexities of speed uncertainty and variability. The results shows the importance of having excess capacity combined with flexible resources if the FSC does not want to depend on keeping inventory. Keeping inventory is however the only strategy which can be used to control over uncertainty and variability when the this is out of control of the supplier, and when supply and demand do not match. This can only be changed by making use of an influence strategy, changing the demand patterns of customers. Lastly, due to the characteristics of the FSC strategies like multiple suppliers, communication and information exchange, relationship management and outsourcing activities become more important compared to supply chains from different industries which depend more on postponements and keeping inventory.
6.1. Managerial implications
This study provides a contribution for managers in a FSC. Managers in a FSC need to pay attention towards process innovations, because this can change the playing field. Some complexities become more important and easier to manage, while other complexities become more difficult to manage. So when a one company in a FSC introduces a new process innovation it is important to know how this affects the strategies the FSC can and needs to use to solve the new complexity pattern. It is most desirable for FSC to innovate in processes that improve the complexity speed and reduces the uncertainty in quality of the raw material.
31 complete control over the variability and uncertainties, or using excess capacity with flexible resources resulting in only partly control over these complexities while improving speed tremendously. Managers need to keep in mind that both these strategies can be costly and inefficient (Vorst, et al., 1998). Another possibility for managers in a FSC facing nonmatching supply and demand is changing the customer demand pattern. By making use of the influencing strategy, a FSC can push the product on the market when the supply is high. Therefore it is important that the FSC creates marketing tools to change the buying pattern of customers.
Managers in a FSC should always make use of communication and information exchange, because it highly reduces uncertainties throughout the supply chain and improves the speed. But by making use of the relationship management, especially with multiple raw material suppliers in the FSC, they can gain some real benefits managing the quality of the supply and increasing the throughput times. Therefore it is important that the FSC becomes as agile as possible and this can be achieved by tight relationships with their suppliers. This can be further improved by involving the supplier in other parts of the supply chain. By outsourcing sales to the supplier they will become more responsible and this will improve the throughput-time and uncertainty at the supply-side. Other strategies to improve throughput times and delivery to the end customer is by outsourcing logistics.
6.2. Limitations and suggestions for future research
32
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