Interests of stakeholders and the alignment of inventory management practices with operations strategy

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Interests of stakeholders and the alignment of

inventory management practices with

operations strategy

Master thesis, MSc Supply Chain Management

University of Groningen, Faculty of Economics and Business

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Abstract

Purpose – In this research the purpose is to examine the underlying mechanisms of the

influence of stakeholders regarding alignment between inventory management practices and operations strategy. The contribution of this research towards theory will be the identification of the underlying mechanisms of the influence of stakeholder interests. This more in-depth understanding on the influence of stakeholders on (non-)alignment hopefully enable practitioners to achieve alignment between inventory management practices and operations strategy, which may improve performance.

Design/Methodology/Approach – To examine the influences of interests of stakeholders on

the alignment of inventory management practices with operations strategy, a multiple case study research design has been selected. Three sources of information were used during this research: informal conversations, document analysis and structured interviews. The semi-structured interviews were conducted within two manufacturing companies where respectively eight and six stakeholders were included.

Findings – The findings indicate underlying mechanisms regarding interests of stakeholders,

which affect the ultimate alignment between inventory management practices and operations strategy. The research revealed a complex mix of mechanisms that contribute to alignment. The interests of stakeholders can be considered as a mechanism that plays an important role in alignment between inventory management practices and operations strategy. However, several elements precede the interests of stakeholders and several elements are affected by interests of stakeholders, examples of these elements are process control, communication, correctness of information, business skills, knowledge and shared understanding.

Originality – This research is unique as current literature hardly considers the influence of

multiple stakeholders and most studies are reflected to the higher-level business strategy instead of the operations strategy.

Keywords – Operations strategy, inventory management practices, alignment, interests of

stakeholders

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Preface

First, I would like to offer my special thanks to Prof. Dr. Jan de Vries for his great support and guidance throughout the thesis process and useful feedback during this research. In addition, I would like to thank Dr. Kirstin Scholten for her helpful feedback during this research. Second, I would like to thank the Operations Managers of the case companies and all participants involved in this research for their participation and input for conducting this research. Finally, I would like to thank all people who are close to me for their great support during this research.

June 2020

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1. Introduction

In literature it is widely acknowledged that inventory management is crucial in order to meet the competitive priorities of the organization (Blinder & Maccini, 1991; De Vries, 2013; Krajewski, Malhotra, & Ritzman, 2016). Within the last decades, the focus regarding inventory management has shifted from fully focusing on the quantitative aspects towards including more qualitative aspects on the design of inventory management like the organizational aspects (De Vries, 2005). The design of inventory management may determine the effectiveness of operations strategy (Boyer & Lewis, 2009). Operations strategy is widely known as ‘’the total pattern of decisions that shape the long-term capabilities of any type of operations and their contribution to overall strategy, through the reconciliation of market requirements with operations resources’’(Slack & Lewis, 2015, p. 24) and is central to any organisation’s sustained success. From this perspective, inventory management may play an important role in operations strategy as it can be used to meet market requirements. An example is Volvo Heavy Truck Corporation, a company that sells spare parts for Volvo trucks. This company had problems with achieving service levels despite having high inventory levels. Market analysis revealed that spare parts were being used in two very different markets, a market with predictable- and unpredictable demand. Serving two different markets require also different approaches regarding inventory management (Slack & Lewis, 2015). In this case, no alignment existed among market requirements in operations strategy and inventory management practices.

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7 Many studies suggest the existence of conflicting interests between stakeholders in the design and usage of inventory management systems (De Vries, 2009). The research of De Vries (2013) indicates that different stakeholders may have different perceptions on inventory management systems, and there are indications that the design and usage of the inventory system can be affected by power and interests of stakeholders. However, the research of De Vries (2013) does not consider the overall alignment with the operations strategy and the role of influences of stakeholders’ interests on the alignment with operations strategy remains unclear. Furthermore, the research of Boone, Craighead, Hanna, and Nair (2013) suggests that a well aligned approach to inventory management in combination with the overall strategy will improve the overall performance of the company. However, they do not consider the influence of interests of stakeholders on the alignment between inventory management practices and operations strategy. In addition, research has been conducted into alignment between the business strategy and competitive priorities of organizations (Joshi, Kathuria, & Porth, 2003; Papke-Shields & Malhotra, 2001; Schniederjans & Cao, 2009). However, these studies are mainly focused on the alignment on higher management levels. The interesting gap is that influences of interests of other relevant stakeholders (sales, finance, operations) are not considered in these studies. This leads to the following research question: What are the influences of interests of stakeholders on the alignment between inventory management practices and operations strategy?

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8 research is unique as the outcomes of earlier studies hardly consider the influence of interests of stakeholders since most studies are reflected to alignment on the higher level business strategy instead of the operations strategy, which gives this research even more interesting insights.

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2. Theoretical background

2.1 Operations strategy

In literature it is commonly acknowledged that the research of Skinner (1969) is the starting point of operations strategy literature (Anderson, Cleveland, & Schroeder, 1989; Boyer & Lewis, 2009; Brown, Squire, & Lewis, 2010; Shavarini, Salimian, Nazemi, & Alborzi, 2013). The research of Skinner (1969) introduced operations strategy on the one hand as the manufacturing task to make consistent internal choices regarding the competitive priorities of the company in line with the business strategy and the competitive environment. On the other hand Skinner (1969) introduced operations strategy by describing how the company intends to be competitive in the market (Skinner, 1969). The research of Skinner (1969) was the first research which emphasized the importance of the operations function from a strategic point of view and the strategic importance of operations strategy was established by this study (Anderson et al., 1989).

Operations strategy has attracted many scholars. Leong, Snyder, and Ward (1990) differentiated operations strategy in terms of content and process. The content relates to the strategic issues that must be solved while the methods and the process relates to procedures used in order to create solutions. Rudberg and Olhager (2003) argue that operations strategy can be characterized as a pattern of decisions influencing the ability to meet the long-term objectives, market requirements and the manufacturing task. Shavarini et al. (2013) uses the different perspectives of operations strategy mentioned by Slack and Lewis (2015). Most of the terms in literature reflect elements of the widely known definition of operations strategy of Slack and Lewis (2015). Slack and Lewis (2015) describe operations strategy as ‘’the total pattern of decisions that shape the long-term capabilities of any type of operation and their contribution to overall strategy, through the reconciliation of market requirements with operations resources’’ (Slack & Lewis, 2015, p24).

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10 but with the same meaning. These performance objectives will also be used in this research in order to define performance objectives of the company. Developing operations strategy may also lead to trade-offs on different decision areas. Beckman and Rosenfield (2007), Miltenburg (2005) and Slack and Lewis (2015) use different terms regarding these decision areas, however, the meaning of the terms matches. Therefore, four commonly used decisions areas can be distinguished in operations strategy: capacity strategy, process technology strategy, supply network strategy and organizational development.

The effectiveness of an operations strategy is determined by fitting practices of a company to its competitive priorities (Boyer & Lewis, 2009). Decisions related to inventory management practices are examples of decisions that generally need to be aligned with competitive priorities. Inventory management can act as a bridge between operations capabilities and market requirements by ensuring that stock is available at the right time and in the required quantity (Shenoy & Rosas, 2018). Nowadays inventory management decisions depend not only on the quantitative aspects, but also the organisational context is considered to be very important. Inventory management is a management area that relates to different departments in a company, which may address different management and organizational issues between departments. This may potentially make the decision making-process on inventory management practices very complex (De Vries, 2005). Ideally, inventory management practices should be aligned with the operations capabilities and the market requirements of operations strategy. However, this may be a very complex process, as explained before. Therefore, the following section will further elaborate on inventory management practices.

2.2 Inventory management practices

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11 Operations management decisions often consist of different levels, this is also the case within inventory management. Three levels of decision layers exist; (1) strategic, (2) tactical and (3) operational levels. The strategic level involves the higher management levels and the scope of the decision is approximately two till five years. The tactical level involves medium- and top management and is concerned with decisions on the medium term (e.g. one month – two years). The operational level involves short term activities executed by lower levels of management and non-managerial employees and concerns the day-to-day activities of the organizations (Vissers, Bertrand, & De Vries, 2001). Examples of decisions on a strategic, tactical and operational level are given by Schmidt and Wilhelm (2000). Examples of strategic decisions are decisions related to the production technology and capacity of the company. Examples of decisions on the tactical level are the decisions on inventory levels and production lot sizes. The operational level concerns the scheduling part of inventories in order to assure on-time delivery of final products to the customers (Schmidt & Wilhelm, 2000). Also, in this research these three decision layers are used in framing inventory management practices.

From a broad perspective, an inventory management concept starts with an inventory management system which eventually leads to policies and decisions on inventory management. The inventory system includes the context in which inventory decisions are made, this can involve different planning horizons, demand and supply characteristics, capacity limitations or objectives to fulfil. The focus in this research will be on the physical infrastructure dimension and the planning and control dimension of inventory systems. The physical infrastructure dimension relates to ‘’the way organisations produce goods and the way goods and materials are distributed from supplier to the manufacturer and from manufacturer to the customers’’ (de Vries, 2007, p. 65). Implementing stock points, optimising lot sizes and adapting manufacturing capacity to demand are some examples related to this decision area. These decisions are tactical decisions regarding inventory management practices.

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12 review frequency, a company may decide to continuously or periodically review the status of the inventory system (Nahmias, 2004). The replenishment times can be either, order placement when the inventory level reaches a predetermined level or order placement at fixed review intervals. The size of a particular order depends on different factors like ordering costs and holding costs, but also losing customers due to out-of-stock situations is an important risk to consider (Shenoy & Rosas, 2018). These decisions are operational decisions regarding inventory management practices.

Following the literature review on inventory management practices, this research defines inventory management practices as the decisions to be made on the physical infrastructure (decisions on inventory items, stock points, capacity and lot sizes) and on the planning and control structure (frequency, when and how much to order). These are respectively the more tactical and operational decisions on inventory management practices. These decisions are important to consider related to operations strategy since these decisions may have a major influence on the achievement of the performance objectives in operations strategy. Therefore, these decisions have a major influence whether alignment between inventory management practices and operations strategy will be achieved. Inappropriate decisions on inventory management practices can severely affect the ability of an organization to respond to changing market conditions and alignment has been frequently mentioned in literature to affect this ability (Schlosser, Wagner, & Coltman, 2012). Therefore, the following section will further elaborate on alignment.

2.3 Alignment

In literature, alignment is often linked to Information Technology systems. Chan and Reich (2007) have conducted a literature review on alignment definitions. They refer to the definition of Reich and Benbasat (1996), they define alignment as the degree to which the mission, objectives, and plans contained in the business strategy are shared and supported. Henderson and Venkatraman (1993) define alignment as the degree of fit and integration among business strategy, IT strategy and business infrastructure.

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13 multiple stakeholders in an organization (Boyer, Swink, & Rosenzweig, 2009). In addition, alignment is seen as the major factor in the success of organizations (Joshi et al., 2003). Within the operations strategy literature stream, alignment can be classified as internal- and external fit (Schniederjans & Cao, 2009). External fit is described as the level of agreement between the focus of the operations and its market and internal fit is described as the consistency within the operations function of the company (Maylor, Turner, & Murray-Webster, 2015).

An essential element in developing the operations function into a competitive weapon to compete with the competitors in the market is the degree of alignment between an organization’s competitive priorities and its key decisions regarding investment decisions on structural and infrastructural level (Boyer & McDermott, 1999). Rosemann and Vom Brocke (2015) define strategic alignment as the linkage between organizational priorities and enterprise processes enabling continual and effective action to improve overall business performance. Papke-Shields and Malhotra (2001) define strategic alignment as the degree of understanding and agreement between top management and the manufacturing function and how manufacturing can support the strategic direction of the firm.

According to Chan and Reich (2007), alignment has four dimensions regarding the Management Information Systems literature. These dimensions include: strategic, structural social and cultural dimensions. The strategic dimension contains the degree to which the business strategy and plans complement each other. The structural dimension refers to the degree of structural fit between inventory management practices and business (location of decision-making rights, (de)centralization of inventory management). The social dimension refers to the degree of mutual understanding of departments on the business and its mission, objectives and plans and the cultural dimension refers to the alignment between cultural elements as the business planning style and the communication style.

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14 systems research. The strategic dimension refers to the strategy and plans relating to one another, but also include structural elements like meetings, plans, roles and rights. The social dimension is about relationships and cognitive linkages. Soft factors like mutual trusts, respect and communication serve as core elements in this dimension. The human dimension is concerned with distinct attributes of individual persons related to skills, leadership, knowledge and competences.

In this research, alignment between the understandings of different stakeholders (social dimension) as well as the fit between organization priorities and business processes (strategic/intellectual dimension) is of importance. Moreover, the human dimension is an interesting addition and may also play a role in this research. In line with that, the research of Schlosser, Wagener & Coltman (2012) is followed, who capture the social, human and strategic dimensions of alignment. The dimensions are further operationalized in table 1. As interests of stakeholders possibly play a role whether alignment exists, the next section will elaborate on the interests of stakeholders.

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15 2.4 Interests of stakeholders

From the literature, it is well established that interests of different stakeholders like sales and production can vary regarding the operations function in a company (Konijnendijk, 1992). Therefore, also inventory management practices are exposed to certain interests of stakeholders. Stakeholders are defined as the individuals and groups with an interest in the outcome of the project (Slack & Lewis, 2015). Stakeholders may have different perspectives on certain inventory management practices and this can eventually lead to conflicts with other stakeholders. The performance of production-sales is among others affected through the interests of the involved stakeholders (De Vries & Boonstra, 2012).

Examples of employees who may have an interest in shaping inventory management practices are sales, production, purchasing and warehousing (De Vries, 2013). These different stakeholders can have different perceptions on the process and design of inventory management practices. The research of De Vries (2013) confirms the added value of taking interests of stakeholders into account in the context of inventory management systems. The research of De Vries (2013) indicates that different stakeholders may have different perceptions on the design, implementation and usage of the inventory management system, which can also affect the design. This means that inventory management practices are not only a technical process but also a process where the organizational context is of importance.

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16 Many authors state that the perceived interests consists of several elements and is often based on economic and/or strategic objectives (Boonstra & De Vries, 2008; Boonstra & De Vries, 2005). In this research, the definition of interest is adopted from Boonstra and De Vries (2005) and adjusted to inventory management practices. Boonstra and De Vries (2005) define interest as perceived interest, which indicates that the stakeholders believe they will have advantages of the inventory management practices and operations strategy, which will outweigh the efforts and costs. This research mainly focuses on interests of stakeholders on an individual level. Some sources of interests were identified in the previous paragraph; personal, the business process (department level), information and goals. In table 2 an operationalization within the context of the research is given in an overview on possible research objects regarding the sources of interests mentioned before.

Table 2: Operationalisation of sources of interest in relation to inventory management practices (IMP = Inventory Management Practice in this table)

2.5 Conceptual model

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17 The idea behind the model is that the inventory management practices and operations strategy should be aligned, but that interests of stakeholders may influence these two constructs, which may affect the ultimate performance. However, the influence on performance is not of particularly interest in this research, but an attempt will be done from the case studies to find indications on the relationship of alignment regarding performance. The contribution of this research towards theory will be the identification of the underlying mechanisms of the influence of stakeholder interests on the (non-)alignment between inventory management practices and operations strategy. This more in-depth understanding on the influence of stakeholders on (non-)alignment hopefully enable practitioners to achieve alignment between these two constructs, which may enhance company performance. The conceptual model leads to the following sub research questions:

1. What is the influence of interests of stakeholders on inventory management practices, alignment and operations strategy?

This question aims to understand the influences of the interests of different stakeholders on inventory management practices and operations strategy and whether alignment is affected by the influence of these interests on the design of these two constructs. The expectation is that the interests of stakeholders play an important role and influence the design of inventory management practices and operations strategy, which subsequently affect the alignment between those two constructs.

2. What are the underlying mechanisms regarding the influence of interests of stakeholders on the alignment between inventory management practices and operations strategy? This question addresses the alignment between inventory management practices and operations strategy, considering the results of the previous question regarding interests related to these constructs. The expectation is that underlying mechanisms exists regarding stakeholder interests, which influence the design of specific inventory management practices and operations strategy. The expectation is that this influence is in such a way that it is not always aligned with the operations strategy of the company, which may result in non-alignment between inventory management practices and operations strategy.

3. How does this (non-)alignment affect the ultimate performance of the company?

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18 case studies whether a relationship exists regarding performance, so this will be a ‘by-product’ of the research. This research question aims to check whether alignment or non-alignment affect the ultimate performance of the company in terms of quality, delivery, flexibility and cost. The expectation is that in case of alignment, the company shows improvement on the performance objectives mentioned and in case of non-alignment shows deteriorated performance regarding the performance objectives.

Figure 1: Conceptual model

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3. Methodology

3.1 Research design

To examine the influences of interests of stakeholders on the alignment of inventory management practices with operations strategy, a multiple case study research design has been selected. In this research, the interest is particularly on understanding the underlying mechanisms regarding influences of stakeholder interests on alignment. Case study research is generally suited to explore such real life phenomenon in-depth (Yin, 2009). Despite several papers have examined the role of interests of stakeholders on alignment, only limited research has been conducted into the influence of stakeholder interests and the alignment between inventory management and operations strategy. A complete understanding about influences of stakeholder interests regarding alignment remains still unclear in literature. Besides, it is a complex phenomenon in which all variables intervene. Actually, this can only be properly investigated by doing research in a natural setting with attention for the complexity of the phenomenon. Through appliance of the case study research method, the phenomenon can be studied in its natural setting and meaningful, relevant theory may be acquired from the understandings gained during the case study. Besides, the case study method allows the ‘what’ question to be answered with a relatively full understanding of the nature and complexity of the complete phenomenon (Meredith, 1998). Performing, for instance, survey research would possibly rule out valuable insights and is therefore not suited. Therefore, the case study research method fits in this research. The multiple design reduces the risks of misjudging on a single event may be reduced when events and data are compared across cases. In addition, a multiple case study provides more reliable information and improves the validity of the research (Karlsson, 2016).

3.2 Case selection

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20 management practices. Therefore, the manufacturing industry has been chosen to conduct the case study. Two organizations active in the same sector were chosen for this study. The particular organizations included in this case study were selected because they meet the requirements of the specific organization where this research was looking for: the companies have different stakeholders, many inventory decisions have to be made and a particular operations strategy was in place. Furthermore, in one company wrong inventory decisions have been made in the past and it is suspected that interests of stakeholders also played a role in these decisions. Moreover, these two companies will help to confirm the results as literal replication is in place, because the companies are active in the same sector. This includes the second step of the steps suggested by Miles and Huberman (1994).

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21 Table 3: Overview of the cases in this case study

3.3 Data collection

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22 Table 4: Details of the interviews

The researcher collected the data on his own. The data from the semi-structured interviews were collected in April 2020. Each case had its own interests regarding inventory management practices. An interview protocol was developed to be able to compare answers and in order to improve the reliability of the research (Yin, 2009). The interview protocol is included in appendix I/II. All interviews were conducted in the same way. First, general questions were asked regarding the function and role in the organization of the respondent. Subsequently, the different interviewees were asked for their interests on decisions regarding inventory management practices, operations strategy and the interests of other stakeholders. Finally, questions related to the link of the inventory management practices with the operations strategy and the influence of the ultimate decisions on the performance objectives were asked. All interviews were transcribed in order to analyse the data in an appropriate way. The transcribed interviews were validated by the interviewees by asking for feedback and final approval, this strengthened the validity of the research (Yin, 2009).

3.4 Data analysis

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23 model was leading again. So, first all quotes were linked to interests of stakeholders, inventory management practices, operations strategy or alignment, in order to link quotes with the same topic. Afterward, the data were examined from two different perspectives. First the data were linked to the specific element where it says something about regarding inventory management practices, decision areas of operations strategy or elements of alignment like communication. Next, the link was made to performance objectives of the operations strategy. Subsequently, an analysis was carried out in order to explore the influence of interests of stakeholders on inventory management practices and operations strategy. In addition, the analysis related to what extent alignment existed between those took place, taking the alignment dimensions into account. Finally, an analysis was executed whether the ultimate performance of the company is affected and by which performance objective. This attempt was intended in order to identify patterns that could explain how interests of stakeholders are triggered and whether these interests relate to the (non-)alignment between inventory management practices and operations strategy. An example of the coding table is included in appendix III. Afterward, a causal map for both companies was developed in order to structure the way of thinking. This enabled the researcher to get a deeper understanding on the main determinants which influenced the complex phenomenon.

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4. Findings

4.1 Case description Company 1

4.1.1 Background and context of the case

The first case was conducted in Company 1. This company is a medium-sized company operating in different markets with products of linear motion with high precision. The markets where the company is active are niche markets, which means relatively little competition. Quality and reliability are very important aspects for the customers in these markets. The company makes products of high quality and offers standard as well as customer-made products. The company has up to 1.000 species to deliver, so it is impossible to have inventories of all these species, but having the right inventories is important to speed-up delivery. Halve of the business contains standard catalogue products and the other halve of the business contains complete linear motion systems. So, the company has an own product to sell like the standard catalogue products and the complete systems are engineered by the company itself or it is already engineered by the customer. Therefore, the production system is based on as well make-to-stock for standard catalogue products as make-to-order for complete systems. The company consists of several departments amongst which an operations & production, sales and finance department and employs approximately 150 people.

4.1.2 Inventory management practices

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25 to raw materials because it is crucial for the company to produce the products in a competitive way and is therefore considered as an important inventory management practice. The inventory management practices, including a short description and explanation, are shown in table 5.

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4.1.3 Operations Strategy

In Company 1, producing high quality products is extremely important since customers of Company 1 are looking for high precision, high quality and high reliability. In order to enable to achieve this, it is necessary to align the operations strategy with this aim. The different performance objectives combined with the corresponding decision areas regarding operations strategy of Company 1 are summarised in table 6.

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4.1.4 Interest of stakeholders

In company 1 several stakeholders have certain interests. The interests are mainly focused on the inventory management practices. In company 1, eight employees were identified who have their own interests regarding the operations function of the company. These eight employees are divided over the following functions; Operations (1), Sales (2), Finance (1), Purchasing (1), Planning (1) and Production (2). The interests of the stakeholders are shown in table 7.

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28 4.2 Case analysis Company 1

The description section shows a divergence between the interests of stakeholders. In figure 2, the schematic overview of the main determinants, which have influenced alignment, is shown by means of a causal map. When analysing the data regarding how alignment is actually achieved, it shows that a current problem or non-alignment between operations strategy with current inventory management practices precedes the existence of alignment. For instance, the contracts are arranged due to problems in the assembly process because of unavailable components, which led to rush orders, delays and quality problems. Another example is the short lead time items, at some point competitors could offer a shorter lead time compared to Company 1. Subsequently, short lead time items were initiated in order to compete with competitors in the market. Also a problem occurred regarding the raw materials stock, in case of unavailability of the profile raw materials, costs will become extremely high because an additional production step is required. So, almost all inventory management practices are driven by a problem situation or a non-alignment situation with the operations strategy.

After recognition of the problem or the non-alignment with the operations strategy, the interests of stakeholders are triggered. All stakeholders have their own interests and put emphasis on those interests, in order to solve the problems and reach the goals of the company. For example the contracts, operations and sales came up with an idea in order to prevent their problems. Business skills and knowledge were used to create possible solutions for the problem. Subsequently, this led to shared understanding on the problem and solutions for the problem. Shared understanding also improves business skills and the knowledge creation of that particular stakeholder. Business skills and knowledge influence the interests of stakeholders since the skills and knowledge often have an influence whether the interests are perceived as high or low. When the level of skills and knowledge on a certain aspect are high, the interests of the stakeholder may become also high since skills and knowledge generally are the basis for a strong opinion and interest position.

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29 Subsequently the negotiation process and the high level of communication reinforce each other to arrive at an appropriate solution, which is reflected to the operations strategy and, hence, alignment may be achieved.

The alignment between inventory management practices and operations strategy ensures that the performance objectives from the operations strategy can be achieved. For instance, by using the contracts, the quality was improved since the calmness in production returned since the components are always available due to the safety stocks resulting from the contracts. Short lead time items are created to achieve fast and reliable delivery to customers and the cost factor is improved because an item is produced in the most optimal quantity. The raw materials inventory of profiles ensures cost competitiveness and delivery reliability is improved as the throughput time is improved: ‘’Raw material profile is as gold for us, if we do not have the profile, we cannot produce in a cost competitive way’’ (1B).

Although the previous section focused mainly on alignment, also non-alignment existed where will be elaborated on next. A non-alignment between inventory management practices and operations strategy starts with lack of shared understanding and the quality of information-sharing in the supply chain. For example, in the case of short lead time items the quality of information-sharing from the down-stream supply chain was not always accurate and subsequently lack of shared understanding arises among the stakeholders. This results in a low level of communication and also communication has its influence on lack of shared understanding and quality of information-sharing in the supply chain. Subsequently, these three constructs negatively influence the correctness of information. This lack in correctness of information results in a lack of business and market knowledge, which subsequently negatively affected investment decisions, for example the investments related to customer X: ‘’We had invested in order to keep up with the increase in demand, however, this increase became less than expected. Capacity and demand were not balanced. This resulted in high inventories at the customer, which ultimately led to poor quality’’ (1A).

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which ultimately led to poor quality’’ (1A). The non-alignment clearly negatively affected the company performance in the case related to customer X, because quality reduced significantly due to high inventories while quality is highly valued in the operations strategy of Company 1.

Also, mutual trust is decreasing among the stakeholders, which also influences the interests of stakeholders. One thinks twice before implementing, for example short lead time items, because of wrong investments in inventories or machinery in the past: ‘’An example is product Y, this product has been developed last year. Sales communicated this as a short lead time item to the market, while they had not sold anything at that time. Most of the product Y series is still not sold. So, if we had listened to Sales, a high value of inventories would now have been produced’’ (1C). Decreasing mutual trust negatively affects the interests of stakeholders, which may negatively affect the decision-making process. This may lead to non-alignment between inventory management practices and operations strategy when sales communicate an item as short lead time item to the market while this item is not marked as a short lead time item. When this is not the case, the performance on delivery will decrease, because the agreed speed to the market cannot be met and the delivery reliability is subsequently also negatively affected.

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31 4.3 Case description Company 2

4.3.1 Background and context of the case

The second case was conducted in Company 2. This company is a medium sized company operating in the aerospace industry. The company delivers multiple high precision parts for the aerospace industry, hence, the company aims at producing high-quality products. Delivering on time is also extremely important in this industry and is of crucial importance for Company 2. The company produces only customer-specific parts according to the drawings from the customer. The production system of Company 2 is make-to-order as it is based on orders and forecasts of the customers. Company 2 is a second-tier supplier for the big customers in the aerospace industry, so the company delivers indirectly to the big customers in the aerospace industry. The big customers ask from their first-tier suppliers to spread the risks and this is achieved by outsourcing a part of the products to a second-tier supplier, which is the positon of Company 2. There is relatively little competition in the products delivered by Company 2, this is mainly because of the big size of the products combined with the high precision and quality standards. The company consists of the same departments as in Company 1, amongst which an operations & production, sales and finance department and employs approximately 60 people.

4.3.2 Inventory management practices

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32 Table 8: Inventory management practices in Company 2

4.3.3 Operations strategy

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33 Table 9: The components of operations strategy within Company 2

4.3.4 Interests of stakeholders

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34 Table 10: Interests of the stakeholders in Company 1

4.4 Case analysis Company 2

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35 certainty since they are responsible for timely delivery towards each other. Creating certainty results in increasing inventory levels due to increasing order sizes or raw materials that are earlier available as required. This is not corresponding with the zero defects objective of Company 2, which is one of the performance objectives in the operations strategy. This policy proposes to limit stocks as much as possible since quality is assumed to be always sufficient according to the zero defects objective.

As already introduced above, the supplier of the outsourcing process plays a role in the lack of supply chain control. The outsourcing partner recently increased its lead times and production was forced to produce products in advance to send them earlier to the outsourcing partner to conduct the last production step. The production in advance results in an increasing work in process level due to problems at the supplier. ‘’We increased the lead time, so we produced products in advance to create more time at the back of the process, the party to whom we outsource‘’ (2A). This inventory management practice is the result of creating space in the planning due to unreliable supply of the outsourcing partner. The certainty purposes and lead time extensions are inventory management practices which do not correspond with the operations strategy as inventory levels are increased by means of these practices and the principle of ‘Just in Time’ is not being pursued. This non-alignment is initiated by the fact of an extensive process control and lacking supply chain control.

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36 pursued here. The alignment is initiated by the communication and shared understanding about the contracts, which subsequently leads to better decision-making regarding efficient production.

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38 4.5 Comparison of cases

The comparison of both cases with similarities and differences amongst the two cases is shown in table 11. The similarities can be seen as dominant factors with regard to the extent of alignment. There will be further elaborated on the dominant elements, similarities and differences in the discussion section.

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5. Discussion

In this section the focus will be on the interest of stakeholders and the influences of these interests on the alignment between inventory management practices and the operations strategy. As indicated in the conceptual model paragraph, it is interesting to get indications regarding the possible relationship between alignment and company performance, therefore also a part of the discussion is dedicated to explaining indications regarding this relationship. The conceptual model in figure 1 will be the starting point for the discussion.

Influences of interests of stakeholders and alignment

This research shows that the outcome of inventory management practices is indeed influenced by the interests of stakeholders, this reinforces the findings from the research of De Vries (2013) and Barcos, Barroso, Surroca, & Tribó (2013). Additionally, this research indicates underlying mechanisms regarding interests of stakeholders, which affect the ultimate alignment between inventory management practices and operations strategy. The analysis parts in the findings section revealed that a complex mix of mechanisms contributes to the existence of alignment. Clearly, one of the dominant mechanisms which can be accountable for alignment is linked to the conceptual model. The interests of stakeholder can be considered as a mechanism that plays an important role in alignment between inventory management practices and operations strategy. However, several elements precede the interests of stakeholders and several elements are affected by means of interests of stakeholders. This is clearly illustrated in Company 1 and Company 2, where the recognition of a problem or current non-alignment takes place before stakeholder interests are triggered. From a rational point of view, the cause of this trigger may lie in the business process where the stakeholder is responsible for or personal interests, which may be hindered due to the existing problem or non-alignment.

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40 alignment examples as non-alignment examples, interests of stakeholders are immediately triggered after lacking process control and the production strategy. This may be explained by the fact that these stakeholders were directly affected by inadequate process control and the operations strategy did not represent the interests of certain stakeholders.

Looking at the dominant elements which precede or affect the interests of stakeholders, noticeably two elements can be marked as dominant. The first element is communication. Communication seems to be extremely important in both case studies. Communication is affected by shared understanding among the stakeholders, but also the business skills and knowledge have a stake here, as the level of communication is strongly influenced by these two elements. Second, the correctness of information is an important element that precede the interests of stakeholders. Correctness of information is also dependent on the level of shared understanding and skills and knowledge of the stakeholders involved. However, communication also reinforce correctness of information since a high level of communication generally results in correctness of information. Communication was an important element in both cases. Interestingly is that the case studies in the research of De Vries (2009) show information related results regarding inventory management projects. It can be argued that well-defined, suitable information regarding inventory management will support the stakeholder in making proper complex decisions regarding inventory management (De Vries, 2009). This finding emphasizes the importance of well-defined correct information.

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41 of alignment. The strategic dimension mainly contains whether the strategy and plans are related to one another. Alignment in the strategic dimension is possibly the most important alignment dimension in the level of alignment between inventory management practices and operations strategy. If this dimension is not in place it becomes hard to create alignment between the constructs inventory management practices and operations strategy. This research indicates that the alignment dimensions mentioned by Schlosser, Wagner and Coltman (2012) make sense and are suitable to gain deeper understandings on the alignment construct.

Alignment and performance

Both case studies illustrate that alignment between inventory management practices and operations strategy ensures that performance objectives in operations strategy can be achieved and improved. For instance, the findings indicate improvements in quality, delivery speed and reliability and costs due to certain inventory management practices. This corresponds with the research of Boone, Craighead, Hanna, & Nair (2013), which suggests that by changing the inventory management approach in a manner that improves its alignment with the organization’s overall supply chain strategy, improves overall performance (Boone et al., 2013). The value adding part of this research is that the research is conducted in the manufacturing industry while the research of Boone et al. (2013) is conducted in a service supply chain environment.

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6. Conclusion

Overview of the research

It is only recently that social elements of inventory management have drawn the attention of scholars. The findings of this research contribute to the recent research on social-technical elements of inventory management by shedding light on the influences of interests of stakeholders on alignment between inventory management practices and operations strategy. Many stakeholders within a company may have interests in inventory management practices or operations strategy. This research unravels specific underlying mechanisms of stakeholder interests on alignment between inventory management practices and operations strategy. The study is relevant since current literature hardly considers the influence of multiple stakeholders on alignment and most studies are reflected to the higher-level business strategy instead of the operations strategy. To this end, the research calls for an explorative case study in multiple organizations that have an operations strategy and execute inventory management practices. This was done by three methodological steps. First, the case background and context analysis took place. Second, informal conversations with the operations manager regarding the reconciliation process of operations capabilities with market requirements and inventory management practices. Third, semi-structured interviews were conducted with the selected stakeholders.

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43 conclude, this paper proved the relevance of interests of stakeholders regarding alignment, inventory management practices and operations strategy and shows that underlying mechanisms may exist.

Managerial implications

Some practical implications could be retrieved from the findings of this research. First, this research confirms the complexity of interests of stakeholders and alignment between inventory management practices and operations strategy as many elements play a role in this complex research area. For operations managers, it seems to be important to give attention to the interests of stakeholders and judge whether these interests are in line with the proposed operations strategy. When interests are not aligned with the operations strategy, this may lead to non-alignment between inventory management practices and operations strategy, which possibly negatively affect the company performance. Furthermore, the research shows the importance of a ‘helicopter-view’ in a company. With the ‘helicopter-view’ the best possible solution can be achieved by filtering interests of stakeholders that are not in line with inventory management practices or operations strategy, and prevent these stakeholders from pursuing his/her interests by negotiating and influencing behaviour towards other stakeholders. This may prevent the company from a non-alignment situation in the future. Furthermore, the importance of a high level of communication between management and stakeholders is emphasized as a key towards achieving alignment between inventory management practices and operations strategy. A high level of communication is enabled by business skills and knowledge and shared understanding amongst each other.

Limitations and research implications

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Appendix I: Interview protocol (Dutch)

Geïnterviewde (nummer) Functie

Datum

Begin- en eindtijd

Inleiding onderzoek

Dit onderzoek wordt uitgevoerd ten behoeve van mijn scriptie voor de master Supply Chain Management aan de Rijksuniversiteit van Groningen. In de scriptie richt ik me voornamelijk op de belangen van interne stakeholders op het gebied van voorraadbeheer en hoe deze beslissingen vervolgens zijn afgestemd op de operations strategie. Dit ga ik onderzoeken door middel van het afleggen van meerdere interviews met verschillende interne stakeholders binnen verschillende bedrijven.

Binnen de literatuur is het algemeen bekend dat voorraadbeheer erg belangrijk is voor de algehele prestatie van bedrijven. Verschillende studies benadrukken het feit dat meerdere stakeholders binnen een bedrijf verschillende belangen kunnen hebben met betrekking tot voorraadbeheer. Deze belangen kunnen resulteren in voorraadbeheer wat niet is afgestemd op de operations strategie van een bedrijf. Verder onderzoek is benodigd om de verschillende belangen van stakeholders en de invloed hiervan op de uiteindelijke beslissingen op voorraadbeheer beter te begrijpen. Dit om vervolgens te bepalen in hoeverre de beslissingen op voorraadbeheer zijn afgestemd op de operations strategie van het bedrijf. Ook zal, waar mogelijk, gekeken worden in hoeverre de beslissingen op voorraadbeheer uiteindelijk bij hebben gedragen aan de algehele prestatie van het bedrijf.

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50 De informatie die beschikbaar wordt gesteld zal uitsluitend gebruikt worden voor dit onderzoek, dit houdt in dat deze informatie niet met derden gedeeld zal worden. Ook wordt ervoor gezorgd dat de inbreng van eenieder anoniem blijft, dit wordt gedaan door hierboven een nummer te vermelden, welke correspondeert met de naam van de geïnterviewde. Ook in de rapportage worden de namen van het bedrijf en de geïnterviewden niet vermeld. Ik zou het interview graag opnemen zodat ik het na afloop kan uitwerken. Vervolgens zal ik het transcript toesturen zodat gecontroleerd kan worden of de verstrekte informatie klopt.

Algemene vragen

- Kunt u uzelf en uw rol in de organisatie kort toelichten? - Wat zijn de voornaamste werkzaamheden?

Vragen met betrekking tot voorraadbeheer en operations strategie

1. Kunt u voorbeelden geven over tactische en operationele beslissingen op het gebied van voorraadbeheer?

➔ Hoe komen deze beslissingen in het algemeen tot stand?

2. Hoe zou u uw rol beschrijven tijdens deze beslissingen op het gebied van voorraadbeheer?

3. In hoeverre heeft u belang bij beslissingen gerelateerd aan het voorraadbeheer?

➔ Kunt u een aantal voorbeelden aandragen van de belangen voor u en uw afdeling?

➔ Zou u uw belangen m.b.t. beslissingen op het gebied van voorraadbeheer beoordelen als hoog, gemiddeld of gering?

4. In hoeverre werden uw belangen gewaardeerd door de andere interne belanghebbenden (operations, productie, financiën, inkoop, werkvoorbereiding, planning)?

➔ Hoe en waarom?

5. In hoeverre zijn er tegenstrijdige belangen tussen afdelingen gerelateerd aan beslissingen op het gebied van voorraadbeheer?

➔ Kunt u een aantal voorbeelden aandragen van tegenstrijdige belangen? ➔ Hoe hebben deze verschillende belangen uiteindelijk effect gehad op de

beslissing?

➔ Wat was de rol van deze belangen in de uiteindelijke beslissing?

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51 7. Als je kijkt naar de uitkomst van de beslissingen, welke afdeling(en) hadden volgens u

de grootste invloed op de uiteindelijke beslissing?

8. In hoeverre komen deze beslissingen volgens u overeen met de operations strategie van het bedrijf? Bestaat er een afstemming tussen deze beslissingen en de operations strategie?

➔ Heeft het bijvoorbeeld bijgedragen aan bepaalde prestatiedoelstellingen of juist niet?

9. Wat was uw rol bij de totstandkoming van de operations strategie en wat was uw belang hierbij?

➔ Kunt u een aantal voorbeelden aandragen?

10. In hoeverre speelden de belangen van verschillende interne belanghebbenden een rol in de uiteindelijke totstandkoming van de operations strategie?

➔ Kunt u een aantal voorbeelden aandragen?

11. In hoeverre komen de doelstellingen uit de operations strategie overeen met de doelstellingen van uw afdeling?

12. In hoeverre bestaat er volgens u afstemming in de operations strategie? (worden de eisen vanuit de markt behaald met de operationele middelen van de organisatie)

➔ Op wat voor manier?

Afsluitende vraag

- Zijn er onderwerpen over voorraadbeheer en operations strategie die niet zijn behandeld in dit interview, maar waarover u uw mening zou willen delen?

Vragen specifiek gericht tot operations strategie (afgenomen met operations

managers)

Markt vereisten

• Kun je kort wat vertellen over de markt waarin het bedrijf zich bevindt? ➔ Wat is de positie in de markt?

➔ Hoe onderscheidt men zich in deze markt?

• Wat zijn de vereisten vanuit de markt?

➔ Wat zijn de benodigde prestaties op het gebied van kwaliteit?

➔ Wat zijn de benodigde prestaties op het gebied van snelheid en betrouwbaarheid?

➔ Wat zijn de benodigde prestaties op het gebied van flexibiliteit? ➔ Wat zijn de benodigde prestaties op het gebied van kosten? ➔ Zijn er verder nog vereisten vanuit de markt?

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Strategische beslissingen m.b.t. operations

Met de onderstaande vragen wil ik erachter komen hoe jullie in het algemeen proberen om de benodigde prestaties op de bovenstaande prestatiedoelen proberen te behalen met beslissingen op het gebied van capaciteit, supply chain, procestechnologie, organisatie en ontwikkeling.

Capaciteit

• Hoe worden de capaciteitslevels (machines en mensen) bepaald? ➔ Hoe wordt dit afgestemd op de markt?

• Op welke momenten moeten de capaciteiten worden veranderd?

Supply chain

• De supply chain strategie gaat over de strategische inrichting van relaties met leveranciers en klanten.

Zou je wat dieper kunnen ingaan op deze supply chain strategie en hoe dit zich vertaald tot de prestatiedoelen?

➔ Hoe worden de relaties met leveranciers vormgegeven? Hoe worden ze gemanaged?

➔ Hoe worden de relaties met klanten vormgegeven? Hoe worden ze gemanaged?

Procestechnologie

• Hoe worden machines gekocht? Wat is de strategie hierin, wat moet een machine in het algemeen kunnen?

➔ Niveau van automatisering? Niveau van integratie? • Wat is de rol van het ERP-pakket in de operations strategie?

Organisatie en ontwikkeling

• Op wat voor manier wordt ontwikkeling in de organisatie gestimuleerd?

Interests of stakeholders and the alignment of inventory management practices with operations strategy