The Organisational Maturity Conditions for Implementing the Lumus Standard
Author: N.C. Plattel
Supply Chain Maturity:
The Organisational Maturity Conditions for Implementing the Lumus Standard
Thesis for Master of Science in Business Administration Small Business & Entrepreneurship
RijksUniversiteit Groningen
Author: N.C. Plattel
Organisation: Lumus Supply Chain Solutions Pty Ltd., Johannesburg, South Africa
Supervisors Lumus: Dr. M. Shaw W. Viljoen
University Supervisors: Drs. D. Maccow
Dr. W. Westerman
Amsterdam, April 11, 2007
© The author is responsible for the contents of this publication. Lumus Supply Chain Solutions Pty Ltd. and the author hereby give permission for this publication to be placed in libraries for reference purposes. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means without the prior permission of Lumus Supply Chain Solutions Pty Ltd.
and the author.
Acknowledgements
The past year has been the experience of a lifetime. Changing continents is simple, ‘just’ arrange an internship, buy a ticket, and fly across. Finding a place to stay and finding your way in a city and organisation on the other side of the world is not that difficult or different compared to home.
However, when Maslow’s basic needs were fulfilled, I began to appreciate the country and experienced the South African way of life. The hospitality and openness of the people, whether they were black, white, coloured, or Indian, made me feel at home in just a few days. Their efforts made me feel that I was not some tourist and/or just a passer-by. The attitudes of these people allowed me to be part of their every day lives. It enabled me to carry out my research with the necessary understanding of a different culture and above all with joy. In particular, my colleagues taught me about their different life-styles, Apartheid, and languages. The girls tried to teach me how to dance the African way, but unfortunately: “I do not have a bum”. Through them, I learnt an incredible lot about being young and black in post Apartheid South Africa. I would like to thank everybody who contributed to this experience.
Furthermore, I would like to thank a few persons in specific. Mrs. Desiree Smits van Waesberghe of Association Global Services/ Supply Chain Council in South Africa who introduced me to Lumus Supply Chain Solutions. I would also like to thank Mr Herman Potgieter who invited me to write my final thesis at Lumus, and Mr Raoul de Villiers, Mr. Wim Viljoen and Mr. Mike Shaw of Lumus for their helpful comments whenever I asked for it and, their continuous interest in the progress of the research.
Finally, I want to thank my university supervisors, Delano Maccow for his patience and pleasant cooperation and Wim Westerman for co-supervising this research and providing me with some sharp remarks.
Charlotte Plattel
Management Summary
Research objective
Gaining market acceptance, and with that reason for existence does not come easy for Lumus Supply Chain Solutions, and its sole product, the Lumus Standard. It appears that the high complexity of implementation of supply chain practices like the Lumus Standard is an obstacle.
Furthermore, some organisations are simply not ready to understand and use an instrument like the Lumus Standard. Both efforts to market the Standard and efforts to implement the Standard (the consulting services) in these organisations will be needless and is a waste of resources.
Buyer organisations, the new target group of Lumus, tend to be more developed than supplier organisations. The assumption is that buyer organisations are better able to integrate the Standard into their standard operations since they have reached a certain level in SCM development. Therefore, they are better able to understand the potential value out of the Lumus Standard and the implications the implementation into their organisations brings with. An assessment of clientele assessing the level achieved in SCM development beforehand implementation, will thus improve the effectiveness of Lumus’ efforts and resource use.
Based on these findings, the following research objective is formulated:
To design an assessment instrument with which Lumus is able to assess SCM development within a buyer.
Research approach
The approach, which is used to develop a sound assessment instrument, is the research method of De Leeuw (1996). This model consists of three phases: product specification, design, and realisation. The design of the instrument is primarily based on secondary data.
Research Results
To achieve the research objective, a SCM Maturity Assessment Instrument is designed. This instrument consists of a questionnaire and a sheet. The sheet is based on two pillars in order to assess SCM development. The first pillar is based on the concept of the Capability Maturity Model (CMM) relative to the SCM field. In the framework for the design, the maturity grid, containing five maturity levels, represents this. The other pillar is based on a literature research through business process oriented articles, which aimed to find or discuss variables that determine SCM development. The five selected criteria are depicted on the vertical axe (see figure 1). The questions of the questionnaire relate to indicators of these criteria. For each indicator an appropriate maturity level should be determined. In this way, an average SCM development score for each criterion can be determined.
Maturity Levels
Criteria Ad-Hoc Defined Linked Integrated Extended
Enterprise Collaboration
Operations Management and Business Process Management Organisational
Behaviour
Information and Communication Management Performance Measurement/
Management &
Decision Support
Figure 1: The conceptual assessment framework
The pilot study and the evaluation of the programme of requirements by Lumus which have been performed to respectively test the instrument on clarity, relevance, and intelligibility and to evaluate whether the design meets the initial objectives, have led to the following conclusions.
The design complies to a large extent with the requirements formulated by Lumus and thus enables Lumus to assess the level of SCM development maturity of organisations. This assessment serves as the foundation on which either the decision whether or not to implement the Lumus Standard or the decision to firstly improve the level of SCM development can rest. The instrument also serves as a vehicle to determine where the buyer needs to go. In this way, it contributes to the consulting services. The design is evaluated as very comprehensive regarding the variables that determine SCM development, and the instrument looks attractive and has a high usability.
However, a few recommendations can be given to improve the assessment instrument. Firstly, the design has not been tested in a real life situation yet. Before the tool is used, it is suggested to perform a large-scale survey to assess reliability and accuracy of the results. Furthermore, a list of definitions might be put together while some respondents might not understand all terms used in the instrument. Finally, next to a SCM development level of a buyer, Lumus’ readiness level is necessary to decide which buyers will proceed through the implementation phase. The formulation of this level, which differs for each case, has not been given much attention. It is therefore recommended to formulate this level based on the resources available at Lumus and the contextual factors like a buyer’s position in the supply chain.
Increasingmaturity Increasingmaturity
Increasingmaturity
Increasingmaturity
Increasingmaturity
Table of Contents
OUTLINE 7
CHAPTER 1: THE ORGANISATION 8
§1.1 Lumus Supply Chain Solutions and the Standard 8
§1.2 The Lumus Standard in the Supply Chain Context 10
CHAPTER 2: PROBLEM ANALYSIS 12
§2.1 Problem Description 12
§2.2 Problem Diagnosis 13
§2.3 Managements Reaction to the Problems 17
§2.4 Selection of Research Objective 21
CHAPTER 3: METHODOLOGY AND RESEARCH DESIGN 22
§3.1 Methodology 22
§3.2 Design Method 23
§3.3 Design Phase Method 24
§3.4 Design Questions 26
§3.5 Research Constraints 27
§3.6 Research Model 28
CHAPTER 4: PROGRAMME OF REQUIREMENTS 30
§4.1 Introduction 30
§4.2 Functional Specifications 30
§4.2.1 Organisational problem 31
§4.2.2 Further specifications 31
§4.2.3 Theoretical requirements 32
§4.3 Functional Constraint 33
§4.4 Programme of Requirements 33
CHAPTER 5: THE REFERENCE FRAMEWORK 35
§5.1 Introduction Conceptual Diagnosis Model 35
§5.2 Introduction Reference Framework 36
§5.3 Search for SCM Commonalities 37
§5.3.1 Commonalities in viewpoints 37
§5.3.2 Commonalities of the changing competitive environment 38
§5.3.3 Commonalities in SCM focus points 39
§5.3.4 Commonalities in required type of organisational change 40
§5.3.5 Summary of SCM commonalities 41
§5.4 SCM Development 41
§5.4.1 Value chain concept 41
§5.4.2 Integrated SCM 42
§5.4.3 Structural and collaborative mechanisms 43
§5.4.4 Summary underlying themes of SCM development 44
§5.5 The Reference Framework 45
CHAPTER 6: THE ASSESSMENT INSTRUMENT FRAMEWORK 47
§6.1 Maturity Grid 47
§6.1.1 PMG maturity grid 48
§6.1.2 CMM grid 48
§6.2 Maturity Criteria 50
§6.2.1 A literature review on enablers of SCM development 51
§6.2.2 Determination of maturity criteria 55
§6.2.3 Description of maturity criteria 57
CHAPTER 7: DIAGNOSIS INSTRUMENT 61
§7.1 Introduction to Operationalisation of the Maturity Criteria 61
§7.2 Operationalisation of Collaborative Enterprise 63
§7.3 Operationalisation of Operations Management and Business Process 67
Management/ Engineering 67
§7.4 Operationalisation of Organisational Behaviour 69
§7.5 Operationalisation of Information and Communication Management 72
§7.6 Operationalisation of Performance Measurement/ Management and Decision Support 75
CHAPTER 8: OPERATING PROCEDURE 79
§8.1 Blueprint for Working with the Assessment Instrument 79
§8.2 Analysis and Judgement of the Assessment Results 80
CHAPTER 9: TEST AND REFINE THE ASSESSMENT INSTRUMENT 83
§9.1 Pilot Study 83
§9.1.1 Results pilot study 84
§9.1.2 Alterations to the assessment instrument based on the results 86
§9.2 Evaluation of The Assessment Instrument 86
CHAPTER 10: CONCLUSION AND RECOMMENDATIONS 92
§10.1 Conclusion 92
§10.2 Recommendations 94
§10.3 Using the Results 94
CHAPTER 11: DISCUSSION 96
LIST OF REFERENCES 97
APPENDICES 100
Appendix A1: Covering Letter 101
Appendix A2: Pilot Study Questions 102
Appendix B1: SCM Maturity Assessment Sheet 103
Appendix B2: Questionnaire SCM Maturity Assessment Instrument 104
Appendix B3: Table 1 - The Collaborative Enterprise 107
Appendix B3: Table 2 - Operations Management and Business Process Management/ Engineering 108
Appendix B3: Table 3 - Organisational Behaviour 109
Appendix B3: Table 4 - Information and Communication Management 110 Appendix B3: Table 5 - Performance Measurement/ Management and Decision Support 111
Appendix C1: Refined SCM Maturity Assessment Questionnaire 112
Appendix C2: Refined SCM Maturity Assessment Sheet 115
Appendix D: List of Abbreviations and Glossary 120
Outline
The research is organised as follows. First, an introduction to the organisation and its sole product is given in chapter 1. This introduction is followed by a description and analysis of the problems with which Lumus is dealing in chapter 2. Based on these findings, a research objective is selected and formulated. The objective of this research is to design an assessment instrument.
In the third chapter, the methodological background is determined and set out in detail. This reflects the researcher’s approach to achieve the research objective. Before commencing with the actual design phase, the research objective is made concrete by formulating theoretical and functional requirements in chapter 4.
These requirements guide the design phase and enable the evaluation of the assessment instrument afterwards. The design phase consists of three chapters. Chapter 5, is aimed to develop a reference framework of SCM development. In order to develop this framework secondary data on SCM and SCM development are studied. In conformance with this reference framework, an appropriate maturity grid and relevant assessment criteria are selected in chapter 6. In chapter 7, the criteria are operationalised to be able to assess them. First, the criteria are linked to indicators and next to this, each indicator is characterised for each maturity level. This step finalises the design of the assessment instrument.
Subsequently, an operating procedure on the execution of assessments is formulated in chapter 8. In chapter 9, a pilot study is performed to pre-test the design with a group of SCM experts on possible interpretations and reactions. In particular, the clarity, the intelligibility, and the content validity are tested. Furthermore, the designed assessment instrument is evaluated based on the requirements that are formulated in chapter 4. Based on these findings, the design is refined.
Finally, in chapter 10, a conclusion is made on the extent of achievement of the research objective and some recommendations are given to Lumus towards a complete fulfilment of the design requirements and on using the assessment results. The concluding chapter is followed by a brief discussion of the limitations of the research process and product.
Chapter 1: The Organisation
The intent of this chapter is to familiarize the reader with the organisation in which this research will take place. The first section provides information on Lumus Supply Chain Solutions Pty Ltd.
and her sole product, the Lumus Standard. The section starts with an introduction to the situation that gave rise to the development of the Standard as well as the existence of Lumus. This introductory chapter will be concluded with an example that demonstrates the usefulness of the Lumus Standard in a SCM improvement process of organisations (§1.2).
§1.1 Lumus Supply Chain Solutions and the Standard
The ability of the total supply chain to compete globally becomes crucial and to have ongoing visibility on requirements and performance throughout the supply chain becomes essential. In this scenario, organisational attitudes that lead to win-lose negotiations and positioning behaviour becomes increasingly less desirable or acceptable. Therefore, the nature of the buyer- supplier relationship is changing at a fundamental level as well. The emphasis is shifting to collaboration between buyer and supplier with a view to optimise the supply chain and extracting maximum value for all supply chain participants.
To accommodate integrated supply chains and networks, increasingly sophisticated supply chain technology solutions and improved SCM methodologies are applied. These developments have done much to increase the efficiency and effectiveness of supply chains. “However, there are still significant costs, risks, and efforts associated with finding and assessing and evaluating the quality of performance of supply chain participants” (Lumus Brochure: 2005: 1). The myriad of potential trading relationships has led to just as much assessments for assessing quality performance of these suppliers and buyers. These assessments are based on a buyer or supplier’s own processes, criteria, and standards. The assessment outcomes will therefore vary from organisation to organisation, resulting in a situation that each organisation needs to assess and be assessed on a constant basis. This is imaginably a constant strain for organisations since a high level of duplication of information is required from organisations, assessments are expensive, and time consuming.
Lumus Supply Chain Solutions, a South African based organisation, seeks to overcome these assessment related problems through the application of a comprehensive organisation- wide assessment process and standard (the Lumus Standard) which aims to consolidate the various organisational assessment standards around a single common standard and shared information base (Lumus Brochure: 2005: 4). The figure below (Figure 2) shows the intended contribution of the Lumus Standard, a procurement tool, to more effective and efficient SCM. As can be seen, in the “To-Be” situation, the Lumus Standard, illustrated as the dot in the middle, simplifies the process and hassle associated with the buyers and suppliers trading relationships.
Figure 2: The intended contribution of the Lumus Standard in the procurement phase Source: Lumus Brochure: 2005: 5
The Lumus Standard is a cross-industry organisational assessment standard based on the Balanced Scorecard (BSC). The BSC works from four different perspectives: financial perspective, customer perspective, business process perspective, and learning and growth perspective. Whilst the balanced scorecard is generally applied to measure one’s own performance in meeting strategic goals, the Lumus Standard measures the performances of suppliers. The performance of a supplier is presented with a series of linked and weighted compliance type questions which are then plotted on an organisational maturity scale of 1 to 5 – from “innocence” to “excellence”
for each of the four scorecard dimensions (Lumus Brochure: 2005: 6). The assessment results of suppliers can be compared with requirements from buyers on an e-based database, which is partially open to anybody. It will be possible to get visibility across the whole supply chain, the ability to manage risk in trading relationships, and the ability to drive organisational development both internally and externally. The Lumus Standard can be used in four primary areas of operation:
As a vendor management and procurement performance tool (for buyer organisations)
A comprehensive marketing tool that provides suppliers with tools and information to segment their market and effectively target existing and potential new customers
As a risk management tool
As an organisational development tool
Lumus Supply Chain Solutions is initiated and supported by Ernst & Young to address the challenge of lack of information and visibility in the supply chain. In the last five years it has been
Buyers &
Development Agencies
To-Be
Suppliers
As-Is
Suppliers
High level of duplication and cost for both the buyers and suppliers
A shared service based on a global assessment standard and shared
knowledge base Buyers &
Development Agencies
developed in conjunction with the DTI (Department of Trade and Industry) and various other industry bodies. Currently, it can be classified as a national initiative, driven by various large and smaller organisations. Lumus Supply Chain solutions is a Pty Ltd but operates as an open standard and will in the future be driven through an industry trust that governs the Standard and the governance rules. This is similar to ISO or GAAP and simplifies the roll out to as many organizations as possible. Until now, Lumus is only active on the South African market but it has great ambitions in going global.
The Lumus Standard has been developed in a unique context. South Africa has gone through a period of significant economic restructuring in the post-apartheid era. This can partly be attributed to South Africa’s increasing integration efforts into the global economy following years of relative autonomy under the apartheid regime. In the relatively small, captive SA market, competitiveness has previously revolved more around marketing effectiveness and price competition than production and systemic efficiencies. (Moodley: 2002: 672). A need for SCM tools exists. Secondly, a second challenge facing SA organisations is the need to develop BEE1 within the supply chain. The Standard incorporates a BEE assessment based on the political, social, and economic systems to accommodate the organisations in this. Thirdly, SA is still a developing country. The government stimulates the support of local business development. The Standard provides for an ability to drive organisational development.
The requirement, which is needed in order for the Lumus Standard to work, is that there are enough buyers as well as suppliers visible on the open database. If more and more people use the Lumus Standard, the product will increase in value. This is similar to a network effect. A network effect causes a good or service to have a value to a potential customer dependent on the number of customers already owning that good or using that service. Network effects become significant after a certain subscription percentage has been achieved, called critical mass2. Therefore a requirement for Lumus to survive, is to attain a critical mass on the open database as soon as possible.
§1.2 The Lumus Standard in the Supply Chain Context
The offering of procurement tools like the Lumus Standard to accommodate supply chain integration is filling a gap in the South African market of pro-active organisations. The Lumus Standard thus caters for organisations that are willing to develop in supply chain management.
This requires a different mindset focusing on deriving competitive advantage from supply chain integration and competing against other supply chains. To have a notice of how an organisation would start with and proceeds in supply chain integration, a best practices programme of supply chain integration development is shown in Box 1. SCM practices are a set of activities undertaken in an organisation to promote effective management of its supply chain (Li et al.: 2006: 109). It is to this programme where we can relate most of the Lumus Standard applications too (vendor
1 BEE stands for Black Economic Empowerment. BEE is a program launched by the South African government to redress the inequalities of Apartheid by giving previously disadvantaged groups (black Africans, Coloureds, and Indians economic opportunities previously not available to them. It includes measures such as employment equity, skills development, targets for ownership, management, and preferential procurement.
management, risk management, and organisational development) As you can see these applications will in particular become useful when the organisation progresses through bullet points 4, 6, and 7.
Box 1: A best practices programme for supply chain integration development Source: Kaplinsky: 2002: 61
1. Wake-up call. The key governing party in the chain has to recognize it has a problem in its own operations, which requires it to restructure in order to meet competitive pressures. This restructuring may either be proactive, in which case this chain is a first-mover, or it may be reactive.
2. Internal change. Having recognized the need to upgrade, the governor has to move to improve the chain’s internal operations. In this, as we saw above, it needs to identify rapidly growing and profitable market segments, to understand the critical success factors in these markets, to relate these to its core competences, and then to orient its internal manufacturing operations to meet the needs of its chosen market segments.
3. Targeting value chain efficiency. Having recognized the need to change the chain’s internal operations, and having taken action to do so (since this is a necessary precursor to supply chain management), the governor needs to recognize the need for its own value chain to become more effective. It also needs to recognize that this value chain improvement must extend beyond the first tier, and that the SME suppliers in its chain may have particular problems.
4. Rationalisation of vendor/customer base. Almost always the first step, which the governor will need to take, will be to rationalize its supply or customer base. Although this may lead to a reduction in the number of first tier suppliers, insofar as the role played by SME’s in its chain is concerned, it need only ensure that its first tier or second tier suppliers are capable themselves of upgrading their SME third and fourth tier suppliers.
5. Communication of new requirements to vendors. Having rationalized the supply base, the governor then needs to communicate its needs, generally with regard to quality, costs and delivery, to its supply base.
6. Monitoring and sanctioning new performance by suppliers. Supplier performance then has to be measured. Where deficient, suppliers need to be negatively sanctioned, and this may or may not be complemented by positive rewards to those suppliers who perform well.
7. Supply chain learning. So far, all of the above steps are the relatively easy part, and only set the basis for a process of actively assisting suppliers in general, and SME’s in particular, to upgrade their operations. The really sophisticated value chain governors will then also go on to recognize that they can not only assist their suppliers to upgrade, but can also learn from them as well.
Chapter 2: Problem Analysis
The objective of this chapter is to present the research problem. The following key topics in this chapter will present the research problem in more detail. The chapter begins with a section that introduces the problem and that shed some light on different dimensions of the problem situation in section §2.1. More in-depth insight by way of an analysis in which the causes of the problem are discovered is given in section §2.2. In section §2.3 we can read that the Lumus management noticed the central problem as well and responded to it with a strategic session. In the session, Lumus took some major decisions on which we shortly expand. The change in policy revealed practical needs, which are translated into a research objective. The research objective is stated in section §2.4.
§2.1 Problem Description
Lumus Supply Chain Solutions has developed a new product called the Lumus Standard for supply chain management. A need exists to ensure market acceptance of the product and to gain market share in the South African market place. The key issues that Lumus faces in gaining this market acceptance gave rise to this research.
The Lumus management has indicated that the Lumus Standard is a sound product even though there is low acceptance by buyers and suppliers of the Lumus Standard. The key problem for this low acceptance has been attributed to a lack of a coherent marketing approach. Starting up an organisation with a new product, entering a new market inherits many uncertainties, which is why formulating an effective approach might be a difficult thing to do indeed.
During informal conversations with the Lumus management, information regarding perspectives on the Lumus Standard is gathered. Next to this, information on buyers and suppliers perspectives, stored by the Lumus call center, is consulted. These perspectives indicate the potential causes for the problems Lumus management and other employees encounter in the trading processes. The following perspectives are divided into supplier perspectives, buyer perspectives, and Lumus perspectives.
While both buyers and suppliers are difficult to approach for a Lumus membership, suppliers are the most difficult to get on board. Suppliers and buyers are explained the Lumus Standard and the value it brings to each of them in training sessions and workshops. Although they understand how the Standard could be of value to them, they feel that buyers might gain a lot more value out of it, at the expense of them, the suppliers. Suppliers are afraid of revealing their scores on the balanced scorecard and subsequently, on the open database. The scorecard could show their buyer that they perform less then their larger competitor(s) on items that were previously not important. Many suppliers will thus only fill in the self-assessment if a buyer forces them. Another reason is that suppliers, many of whom are SME’s, in general do not have the resources to buy a business tool. For the suppliers the marketing application of the Standard is a great tool but
obviously, the database will not be of much use when there are not many buyers and other suppliers on it. The suppliers view is that the self-assessment will only cost them time and money in the short run.
From the buyers’ perspective, lack of case examples and the lack of information on the scope of efforts of implementing the Standard in their organisations is the biggest hurdle. The fit between buyers’ operations and the Standard cannot be made clear straightaway. This can mainly be attributed to the buyers’ knowledge of and development in supply chain management (SCM). A glance of this broader perspective has been provided in section §1.2. A certain developed stage in SCM is required to be able to make useful use of the Lumus Standard applications. Regardless of ever-increasing focus in this area however, many organisations do not think beyond their four walls. Sometimes buyers start using the product and even obligate their suppliers to subscribe as a member of the Lumus Standard as well. However, using the Standard efficiently requires much more than a superficial understanding of the Standard. It requires a mind switch and alignment efforts within the organisation. In default of making these efforts, buyers stop being a member, as will their suppliers, since neither of them will be able to gain value out of the Standard.
The following statements best illustrate the reaction of the Lumus management towards the problems described above. “The market is not ready yet”. (Loubscher: personal communication:
December 12: 2005) and; “we should go with the few world-class organisations in the country and take a long breath” (Loubscher: personal communication January 12: 2006) ; and “the market may not be ready, but we need to find a way to penetrate that market” and; “if nothing substantial happens soon, we are finished within 6 months” (Viljoen: personal communication:
January 10: 2006) Next to this, the Lumus management view their lack of financial and human resources as a big hurdle to expand their customer base.
§2.2 Problem Diagnosis
The following step towards a problem analysis is to diagnose the indications for potential causes by systematising them into organisational workable representations (De Leeuw: 1996: 239). An important part of the problem diagnosis can be accomplished by dividing the problems/
indications into instrumental and functional problems. These problems have a cause and effect relationship as is illustrated in figure 1.
Figure 3: Instrumental and functional problems Source: De Leeuw: 1996: 72
Instrumental Problems Functional Problems Problems/Complaints within the
Organisation
The formulation of the central functional problem forms the starting point of the (re-) design or more in general organisational improvement. The instrumental problems refer to causes with which the central functional problem can be solved or anticipated upon.
Functional problem
The organisation is mainly occupied with gaining market acceptance to be able to ensure continuity, with a focus on spending its scarce resources as efficient as possible. A certain number of members have subscribed which by far not meet expectations. If this amount will not increase within a short period (determined by type and number of investor(s) and amount of money invested if any in the near future) the effects of this situation will be a decline in profitability. A declination in profitability will endanger the continuity of Lumus. Therefore, the central functional problem for Lumus is the small increase in quantity of organisations subscribing each year.
Organisational problem
Furthermore, it is necessary to diagnose if the functional problem is indeed an organisational problem. An organisational problem means that it is possible to solve the problem by changing the organisation and or malfunctioning of the people that have problems. Problems are distinguishable into three kinds of problems. These are perception problems (these occur when the problem actor has a wrong idea about the reality), goal setting problems (these occur when the problem actor has too high or unrealistic expectations), and reality problems (these are actual organisational problems). The formulated functional problem can be a goal setting problem as there is a huge discrepancy between the prognosed number of memberships and the actual number of memberships. However, the actual number of subscribed organisations and especially the number of organisations that actually uses the Standard effectively is a problem that cannot be solved by simply changing the setting of the goals. The nature of the problem and the causes revealed in the interviews, all point to the direction of an organisational problem.
Instrumental problem
Now that the central functional problem has been formulated, and it has been determined an organisational problem, the factors underlying the small increase in quantity of organisations subscribing each year have to be found. These are the instrumental problems. A deeper understanding of the context is needed to determine these factors. To obtain this deeper understanding, information is gathered from Lumus personnel by means of structured interviews.
The topics followed from the description of perspectives on the product.
The following barriers to growth were revealed in the structured interviews:
¾ Levels achieved in supply chain management
In the information brochure of Lumus it is said that the days of ‘us’ and ‘them’ in the procurement relationship are gone. As such, the emphasis has shifted to buyer/supplier collaboration with a view to optimising the supply chain and extracting maximum value for all supply chain partners (Lumus Brochure: 2005: 1). The
assignment to meet customer needs in the face of fierce global competition is indeed driving dramatic changes in the way businesses operate. As a result, managers may quote the supply chain mantra of managing value creation from suppliers’ supplier to customers’ customer but it seems no one is engaged in this level of integration (Fawcett and Magnan: 2004: 67). Kaplinsky states that in practice at best most organisations recognize the need for supply chain efficiency and are systematic about communicating their requirements to their suppliers. In a few cases, they will take active steps to assist their suppliers’ upgrading but this seldom exists beyond the first tier (Kaplinsky: 2001: p. 61).
The Lumus Standard is applicable in organisations who want to have visibility on their suppliers and/ or buyers. The value of the tool can be fully appreciated when there is a certain level achieved in supply chain management. The experiences of Lumus in South Africa are that the level of development in supply chain thinking of organisations does not often match the level, which is required to make useful use of the Standard. Many organisations do not even look beyond their four walls. They do not feel that the Lumus Standard is applicable to them and goes well beyond their imagination. The status of organisations in supply chain management can be considered an external problem while Lumus is not in a position to change this.
¾ Complexity of implementation of supply chain practices
Connected with the above is the barrier of complexity of supply chain practice implementation. Implementing the Standard in an organisation involves a lot more than an explanation of the possibilities of the tool. As is readily seen in Box 1, Kaplinsky’s programme, SCM is complex and requires considerably more thought than the installation of a new computer program (Morgan & Monczka: 2003: 44). According to a survey by Booz, Allen and Hamilton 45% of respondents were dissatisfied with their SCM implementations, whereas at the time 19 billion was spent on SCM applications worldwide (2003, SAPICS Conference 2006). The conclusion of the survey was that most efforts to improve supply chain efficiency fall short because they do not challenge the fundamental structure of the supply chain, instead attempt to improve performance within existing limitations, often by installing expensive technologies. Many implementation failures of the Lumus Standard within buyers are caused by the fact that only certain parts or certain people of the organisation are involved in decision-making and implementation. No change management is included as an element of the implementation process.
According to the Lumus management, when Kaplinsky’s phases of SCM are compared with the implementation efforts (phases) of buyers than it is not strange that in all cases buyers have failed to implement the Standard. As said before, buyers just acknowledge the features of the product (surface understanding) but will not transform their view on supply chain management and subsequently will not understand that implementation of the Standard requires change management.
According to Lumus, buyers (no exception) have not undertaken any of Kaplinsky’s phases.
Next to the general difficulties that organisations encounter when implementing new supply chain practices, implementing open source software is also described in literature as problematic. Major problem causes are cost, perceived reliability, compatibility with existing technologies in use, presence of boundary spanners in the organisation, availability of complementary assets, and fear of being “orphaned” by a losing standard (Dedrick & West: 2003: 256)
¾ Characteristics South African market
The small scale and volumes of the SA market (Moodley, 2002) perhaps makes the viability of a supply chain tool (the Lumus Standard) questionable. Larger organisations usually have the tendency to be more involved in logistics and or supply chain management than small and medium enterprises (SME’s). Therefore, these larger organisations are more likely to implement the Lumus Standard (see barrier 1, above). Unfortunately, divisions of large organisations that have a foreign headquarter are usually not allowed to make the decision to become member of Lumus and use the tool. Global offices usually buy systems for the whole organisation. Since there are not many home based global offices in South Africa, the market is hard to reach, thus gaining market acceptance and share is a problem to Lumus.
However, concerning the organisational development application, the South African context specifically gives Lumus an important role where it can be of assistance. The current pressures of globalization and the challenge to direct overseas market expansion underscores the importance of supply chain tools within any organisation and across the supply chain. The Lumus Standard can help with the industrial upgrading and the gainful entering of SME’s into global value chains (Humphrey, J.
and Schmitz, H.: 2000). Multinationals can take active steps to improve the capabilities of their suppliers. They also sometimes assist customers. However, these efforts seldom progress beyond the first tier, and invariably miss SME suppliers (Kaplinsky: 2002). The development application, which Lumus foresees with its Standard, is in a premature stage. It will only be used when organisations fully understand the impact of the whole supply chain on their own performance.
¾ Mindset Lumus
The objective of Lumus is to make the Lumus Standard a real standard, which can be used by everyone for everyone. To help organisations overcome the complexity of implementing a supply chain practice, like the Lumus Standard, the offering of consulting services seems like a logical next step. However, Lumus never intended to become a consulting company. They feel like, this does not go together with an open standard. Lumus does not want an interference of interests. Especially since they are already liaised to Ernst & Young, which might bring along that consulting services can
only be done through Ernst & Young. The mindset of Lumus as a barrier to growth is an internal problem.
In summary, the level of SCM levels achieved in organisations and the characteristics of the South African market are external causes. External causes are causes, which in principle cannot be influenced by an organisation. Lumus might yet be able to anticipate on some of the external causes in order to increase the number of organisations subscribed. The internal problems (problems that can be influenced) are Lumus’ mindset and the complexity of the implementation process of the Lumus Standard in an organisation. A remark can be made here that these so- called internal problems could have been foreseen and anticipated upon earlier if a proper market research and or pilot project had been carried out.
In the next section, we can read how Lumus analyses its efforts towards gaining market acceptance, and the actions it took based on the above-identified barriers to growth.
§2.3 Managements Reaction to the Problems
There is a huge gap between supply and demand regarding the Lumus Standard. The biggest barrier according to Lumus is the lack of supply chain practices implemented in an organisation.
The lack of supply chain practices implemented in an organisation is an indication that few people within organisations think, “supply chain”. Supply chain thinking is necessary in order to understand and gain value from the Standard. Supply chain thinking is also a capability enabler to implement the Standard into the organisations operations (the implementation process). The question remains: what can be done to improve the "adoptability" of the Lumus Standard?
In dealing with the “adoptability” problems of the Lumus Standard by buyers as well as suppliers, Lumus has tried different market approaches. In a strategic session (on 12-01-2006), which followed on the recognition that the strategy lacked a good fit with the market, the management analysed what worked and what did not work, dealing with the barriers to growth (as mentioned above).
An approach that did not work was the focus on reaching a critical mass as soon as possible. A critical mass would have been a trigger for suppliers and buyers to come on board since the open database would now add value. This general and broad market approach (not focused) however, did not lead to achieving a critical mass. Therefore, reaching a critical mass as soon as possible will become of less priority. Focusing on a specific client and some of its suppliers is suggested as another approach to get buyers and suppliers onboard.
Secondly, to leave the implementation of the Lumus Standard up to the client has not proved to be working. Therefore, it is suggested to give consulting services with on-site presence of a Lumus consultant to help the organisations implement and use the Lumus Standard. Implementation of the Lumus Standard should go together with a structural project plan involving change management.
Two main decisions are taken based on this analysis. The first decision is about the target market Lumus wants to aim at. The second decision is based on broadening the scope of services offered. Implementing the Lumus Standard involves change management. Consulting in these processes will increase the usage of the system and facilitate implementation of the Standard. An elaboration on both decisions will be given below.
Target market
The Lumus management recently changed her target market into a focus on “buyers”. Firstly, Lumus management changed their target market into buyers3 since they noticed that buyers had a huge amount of power to force suppliers into a Lumus membership. As mentioned in the problem discussion, suppliers are more likely to comply with the Lumus Standard if a buyer requires it. More in general, buyers tend to govern supply chains by, for instance, using standards.
Suppliers are more or less pressured to comply with these standards to stay in business with this large organisation. Examples are the ISO guidelines. Expectations are that the Lumus Standard could be used likewise.
Secondly, the larger organisations may also have higher levels of SCM practices since they usually have more complex supply chain networks necessitating the need for more effective management of supply chains (Li et al.: 2004: 108). The applications of the Lumus Standard that are specifically designed for usage by buyers are the vendor management & supply chain management application, and the risk application. The buyer applications will thus be of primary focus until the number of members has reached a critical mass. Until this time has come, the other applications will only be of use as a stand-alone assessment. For example, a diagnosis of an organisation can be useful for that organisation but the diagnosis will be of much more value when it can be compared to other companies in the open database. In addition, since global offices are usually in the ability to make the decision to use the Standard; only targeting the market within the borders of South Africa is not productive. Lumus management should focus on the roll out of the Standard globally to broaden their new target market.
Consultancy
Based on the arguments given in the strategic session, an important decision is made on the services offered. This involves a change in Lumus’ mindset. A main barrier for the implementation process of the Standard within buyers is a general lack of supply chain practices and -thinking and the disability to align their strategy, systems, and processes with the Standard. The Lumus management recognised that selling the product requires consulting and changing the customers (buyers’) view on supply chain processes. Therefore, it is decided to start offering consulting services in order to increase the number of Lumus Standard users.
By focusing on the target group of buyers, consultancy services can be developed in a structured way. Phases or stages in SCM like the programme in Box 1 will guide us in what situations consultancy services need to be given before an optimal deployment of the Lumus Standard can take place. For example, the buyer might have failed to make out all the critical phases in front, or
is just too immature in general. Alternatively, the buyer is deeply involved in their own supply chain management programme and has its own supply chain intelligence system(s) or performance measurement system(s) in place.
Figure 4 illustrates and summarises the adjusted market approach discussed in this section. The first column represents an example of a stepwise SCM development process for (buyer) organisations. The second column illustrates that consulting services are needed to help buyers adopt and implement the Lumus standard. The third column clarifies which steps of the SCM development process can be taken with the help of the Lumus Standard. Regarding the second column, the following can be said.
No single consultancy organisation can lead a buyer from zero thinking in supply chain management to developed enough for implementation in a few months. It will most probably take years, if ever. Very underdeveloped buyers will cost Lumus years of consultancy services before the buyer is ready to implement the Lumus Standard. A highly developed organisation in supply chain management will have their own systems in place and it will be difficult to motivate these buyers to change their supply chain intelligence design. Therefore, Lumus as a small company has to set boundaries on the consulting services it can offer. The initial drafts about boundaries for the consulting services Lumus can offer are derived from the strategic session of 12-01-2006:
¾ Consulting is about implementation of the Lumus Standard
¾ Consulting an organisation must be done using the Lumus Standard as a diagnostic
¾ Consulting work must be within the Lumus, or its network, competency
¾ Consulting should include strategy, organisational design, process and technology Obviously more attention should be paid to defining Lumus boundaries for providing consulting services.
Figure 4: The new market approach Theory about
SCM development
Future addition to Lumus processes
Lumus target market
1. Wake-up call
2. Internal change
3. Targeting value chain efficiency
4. Rationalization of vendor/customer base
5. Communication of new requirements to
vendors
6. Monitoring and sanctioning new
performance by suppliers
7. Supply chain learning
Buyers
Buyers
CONSULTANCY
Buyers
§2.4 Selection of Research Objective
The Lumus management feels that it is now on the right track with a renewed market approach.
Focusing on a specific group of organisations and consulting these organisations on the implementation process though, brings new problems, and requires many adjustments to be made within Lumus. For example, it will have to develop implementation process lay outs and implement consulting procedures.
The main criteria on the new marketing approach as revealed in the problem discussion are an efficient use of resources and continuity. Lumus as a small company has to watch its resources very carefully. The focus strategy on buyers allows for a more efficient use of its resources due to better chances of adoption of the Standard. Although Lumus will make better use of its resources targeting a specific group, offering consulting services to implement the Standard will increase the pressure on scarce resources and increase the risk of discontinuity.
In accordance with the Lumus management, it has been decided to undertake a policy supportive research aiming at measures to make more efficient and or effective use of resources. Outcome of the problem analysis is that selecting appropriate buyer organisations can contribute significantly to the effectiveness of the market approach. The assignment to be undertaken is therefore to develop an assessment instrument for selecting appropriate buyer organisations.
Next to this, the functionality of the assessment instrument should enable Lumus to identify SCM problem areas within buyers. This will help Lumus effectively and efficiently direct the consulting services to enable the implementation of the Lumus Standard in a buyer.
The objective of this research can be stated as follows:
To design an assessment instrument with which Lumus is able to assess SCM development within a buyer.
Due to high resource use, consulting to an organisation should ideally be preceded by an indication or assessment of the organisations’ ability to implement the Standard properly. The assumption hereby is that the higher the level is in SCM development, the better the performance is in this area and the better the chances are that the buyer succeeds in adopting a new supply chain practice. In this research, the term readiness is used when referring to “an appropriate level achieved in supply chain management according to Lumus”.
Chapter 3: Methodology and Research Design
In this chapter the research design will be outlined. The method used in this research; the design method by De Leeuw is a practical execution of the methodology. The process from the choice for a methodology to the actual design method is outlined in section §3.1 This design method (specification, design and realisation) will be explained in section §3.2 of this chapter. In the section (§3.3) thereafter, the method for designing a diagnosis instrument will be explained. This will cover the design phase of De Leeuw’s method. In section § 3.4 the sub-questions which leads us through the research process are formulated, and explained shortly. A few resource constraints are discussed in section §3.5. A summary of above mentioned methods and questions can be found in section §3.6; the research model. To assure that the reader has a basic understanding of definitions used in this research, a list of most used definitions is given in Appendix D.
§3.1 Methodology
Research methodology refers to the procedural framework within which the research is conducted. The research methodology is generally predetermined by the type of research (De Leeuw: 1996: 37). Identifying the type of research will therefore help to choose the right methodology and with that the right methods to this research.
An initial distinction can be made between empirical and theoretical studies. The distinction does not consist of opposites because in any research you have to use both. Anyhow, one kind of study will often dominate the research. Empirical is the dominant paradigm in business and management research (Remenyi: 2003: 31.) because of its practical nature. This applies to this study as well; an empirical study fits the research objective best. The core difference between empirical and theoretical research is that the end differs. In the case of this practical research, the knowledge derived from the research, which is an instrument to assess buyers, will end as a tool in a specific practical situation. The product of theoretical research will end in the box of general knowledge.
Within empirical studies one can divide further into problem-solving research and policy- supporting research. Problem solving research is applied when there is a specific client and there is a need to solve the complete integrated problem situation. This in contrast to policy supportive research which aims at developing specific knowledge that can be applied for a part of the problem. This research does not aim to solve the whole market acceptance problem. Instead it supports a small part of the wider market approach, effective and efficient consulting services.
Regarding the product, research can also be typified as design research. Design research is applicable when the aim is to develop new products, instruments and methods. It is not a separate research type but it can put an accent on any type of research. The research method of this type mainly consists of desk research and empirical research. In this case the type of
research can be characterised as a design research, while the aim is to develop an assessment instrument.
Several models have been developed to describe approaches or processes of design. The basic structure of a process design model usually follows the three stages of analysis-synthesis- evaluation. An example of this is the design method by De Leeuw (1996) which consists of the product specification phase, the design phase and the realization phase. A visualization and description of the model are described in section §3.2. This approach will be used in this research.
§3.2 Design Method
De Leeuw defines a design as a model of a future system which in a specific future environment will act as desired (De Leeuw: 1996: 57). Quality of a design depends on the working of the system which means that the system does what it is expected to do under specified conditions.
These specifications can be seen as the research question.
The design method by De Leeuw basically consist of three phases which together form a row of methodical activities. The three phases are illustrated in Figure 6 and briefly described below.
Figure 5: Design Method of De Leeuw Source: De Leeuw: 1996: 194
Product specification
Objective of this phase is adjustment with the client and internal control of the research. This happens through the formulation of design specifications. The design should be seen as a black box. It is the design assignment to find out what the box should look like from inside. Therefore the specifications should be described in functional terms. Constraints should also be formulated.
The product specification phase can be seen as the research question.
Design
The generation of alternative designs is the first part of the design phase. Sometimes the approach is not to generate multiple designs of which you can choose from but to improve one particular system. This is called experimental designing.
The second part of the design phase is the process of choosing a suitable design out of the alternatives. In experimental designing research there will be nothing to choose from as in choosing between different alternatives. In the process however of improving the system, one
Product Specification
Determination of Objective
Restrictions
Specifications
Realisation Design
Generation of alternatives
Choose
