The scenario being investigated consists of the purchase and sale of copyrighted material. For legal compliance all comic books must be purchased from the copyright owner, as such there will be a monopoly supplier in the supply chain. Therefore, the monopoly supplier relationship and the effects it will have on a supply chain need to be investigated.
Working with a monopoly supplier can significantly impact on a supply chain. Humphries (2003, p.11) when researching the situation in the UK Ministry of defence noted there was deliberate withholding of supply chain information, insular non integrative practices, commercial opportunism, unrealistic performance expectations and uncooperative product strategies. Humphries (2004, p.14) also identified practices such as adversarial commercial attitudes and practices, inadequate
investment in specific assets, inadequate product development, inappropriate performance measures, opportunistically providing poor goods and services and the use of information as a weapon. These reduce the growth of trust and therefore the chances of obtaining equitable outcomes and ultimately collaboration.
In addition, Humphries (2004, p.15) cautioned there will inevitably be a reduction in freedom of independent action which may affect the perceived quality of the relationship. Therefore, strategies must be implemented to minimise the effects of these limited choice relationships. Wilding et.al (2006, p.5) stated the application of “C3 behaviour” techniques reduced the inherently negative effects of close proximity and limited choice relationships.
Page | 25 Humphries (2003, p.18) through research came to the conclusion managers (in monopolistic
environments) should try to synchronise objectives in the supply chain, undertake confidence building activities in the supply chain, pay attention to service and product delivery and measuring performance to support the growth of trust. Lynch (2009, p.165) cautioned that partners should trust each other, but, should also verify their suppliers performance and compliance.
Wilding et.al (2006, p.9) identified opportunism between supply chain partners is dangerous to inter-firm operations and once established is difficult to reverse. To remove it requires a
strengthening of the relationship and creation of a reliable business infrastructure. Therefore, when commencing operations it is advised the SME engages in strong relationship building and a reliable value chain to prevent any opportunism entering the supply chain. The SME needs to be careful to guard against opportunism, including not participating in operations with those companies practicing it and not undertaking the practice either. While each business involved in the supply chain obviously wishes to be successful and make money, where one business is succeeding at diminished success to another, it is not true partnership or sustainable in the long term.
Humphries et. al (2007, p.23-24) stated initially you must know where you are in a relationship to allow targets to be set and remedial actions taken to remedy the situation (if needed). It is important to analyse the relationship between the supplier and the customer to know if opportunism is
occurring. Lynch (2009, p. 26) endorsed detailed internal controls, checks and balances and oversight as one way to correct self interest in the supply chain. Humphries et. al (2007, p.6) gave five
dimensions to be investigated as based on the organisational failure framework devised by Williamson (1975) to gauge the quality of the relationship:
x Creativity – degree of innovation present.
x Stability – uncertainty / complexity / relationship specific investments.
x Communication – quality of relationship communication.
x Reliability – effectiveness and efficiency of operations.
x Value – degree or share of joint relationship outputs.
These are highly relevant to the supplier-customer relationship in the analysed supply chain due to the highly interdependent relationship in a limited choice / monopoly environment between the supply chain partners.
Page | 26 2.15 Introduction to Inventory
A fundamental theory in business is the matching of supply and demand. Christopher et. al (2001, p.1) stated supply chain management attempted to match supply with demand, while driving down costs and improving customer satisfaction. Lynch (2009, p.117) went further in his analysis and stated supply chains are in fact slaves to demand where supply needs to match increased demand and supply needs to be able to be reduced due to a decrease in demand. Thus a supply chain should ideally be able to mirror demand with supply.
Shapiro (1984, p.120) stated if a product isn’t available then the customer is unable to make the crucial first purchase. Therefore, it is important to ensure some inventory is in place to avoid the unavailability of materials due to circumstances which cannot be controlled (Lynch (2009, p.238)). Without product availability there is no way for a new supply chain to increase its end customer base. But, while inventory is traditionally put in place to add responsiveness to customer needs and desires, Etienne (2005, p.2) stated it can be a destroyer of supply chain responsiveness.
Inventory is traditionally used as a buffer between demand and supply and therefore has to satisfy two movements, of both increasing and decreasing demand. As Etienne (2005, p.5) stated, inventory is often incorrectly planned with a focus on increasing demand due to the cost of lost sales. However demand decreases also occur and can be just as significant in effect. Decreases in demand are dangerous with large inventory holdings as it delays the time in which the supply system adjusts to demand (Etienne (2005, p.7)). For example, if there are large holdings of inventory when demand is decreasing, some activities (e.g. production or regular purchasing) may need to be temporarily suspended to readjust the inventory level to the new desired level. In addition, Etienne (2005, p.10) stated for industries where product designs are changed frequently, substantial inventory holdings can be disastrous for a company’s market competitiveness. This is due to the need to purge outdated inventory before moving onto new product/s. Having to purge inventory can necessitate that inventory has to have the profit margin decreased or even sold below cost to clear it from the supply chain; which in turn can increase the mark-up on other items to recover the lost revenue (Etienne (2005, p.12)). Thus it is important for the SME to understand where in the product life cycle each of their products are. Rogers et.al (1998, p.188) believed that in the future leading companies will manage their logistics based on where their product is in its life cycle, because products require different type of management and support as they progress through their life cycle. This has implications on the supply chain; For example there will be differing requirements for inventory holdings and transport speed for new products as compared to dated/obsolete comic books stocked.
Page | 27 Therefore a pull based supply system is to be sought to minimise inventory holdings and to attempt to balance supply and demand. This is because a pull system makes the end customer the focus of the network and from their order; the flow of information and resources is instigated. Etienne (2005, p.8) stated pull systems represent the pinnacle of supply chain responsiveness. Cook et. al (2005, p.57) stated pull systems generally decreased the material cycle time, minimised inventories and minimised storage space requirements.
This is important because as Hanover (2006, p.27) identified, inventory is a financial drain on the organisation and causes “waste including quality issues, storage requirements, investments, limiting cash flow and obsolescence”. All these reduce a supply chain’s responsiveness, flexibility and efficiently which ultimately affects its viability through increased costs and delays. Baker (2007, p6) added additional costs of increased damage, deterioration, shrinkage, insurance and management costs, as well as the more traditional cost of capital from holding additional inventory. Because of this Etienne (2005, p.2) stated managers should use actions to lower the inventory needed without increasing cost or reducing responsiveness.