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First of all, I would like to express my deepest gratitude to my professor and supervisor Dr. Pandian from the Plymouth University, for his constant encouragement, advantageous care, useful and constructive feedbacks and suggestions regarding this research proposal. Certainly his permanent harangue “we are here to help you” motivated and induced me to pursue with this work. Because of Mr. Pandian I had the chance to attend pivotal feedback sessions and get all required information for this empirical research and develop my personal skills in writing it.
Equally, I have to thank all the lecturers from the Fontys International Campus in Venlo, the Netherlands, as well as from the Plymouth University in Great Britain for their contributions, hard commitment and great work. Each lecturer gave his/ her best to make the study program of Master of Science in International Supply Chain Management and Logistics unique and outstanding, by transmitting the highest possible amount of knowledge to the students, thus enabling them to complete it in the best way and pave their ways for their futures and professional paths.
Further, I would like to thank all participants to take their time and knowledge to respond to the questions regarding the subject of “Equilibrating Supply Chain Efficiency and Effectiveness to the same Degree in the Fast Moving Consumer Goods Industry”. With the outcomes they assisted me to come up with an outcome and find out how these issues are interpreted and applicable in the daily businesses.
When it comes to Supply Chain Management practice in the Fast Moving Consumer Goods (FMCG) industry, most companies are only concerned with the minimization of cost, waste, time, labor force among others. In essence, little effort is given in improving efficiency and effectiveness as a way of optimizing the Supply Chain Management. In addition, the role of effectiveness and efficiency in the optimization of Supply Chain Management in the FMCG has not been clearly understood. This thesis was developed to use quantitative research methodology to determine the role of effectiveness and efficiency in optimizing supply chain management in FMCG industry. The research was based on German FMCG industry and used Edeka Group as a case study.
Keywords: Supply Chain, Supply Chain Management, Efficiency, Effectiveness, Fast Moving Consumer Goods, Optimization
1.0 Introduction to FMCG industry. 1
1.2 Background of the Study. 2
1.2.2 Optimization of Supply Chain Management 5
1.3 Problems of Optimization of SCM in FMCG.. 6
1.6 Scope and Limitation of the Study. 9
1.7 Significance of the Study. 10
1.8 Disposition of the Thesis. 10
CHAPTER 2: LITERATURE REVIEW... 13
2.1 Theoretical Background. 13
2.1.1 Fast Moving Consumer Goods Industry. 19
2.1.2 Supply Chain Management in FMCG Industry. 21
CHAPTER 3: RESEARCH METHODOLOGY.. 30
3.1 Research Approach and Design. 30
3.2 Case Study - Edeka Group. 32
3.3.1 Semi-structured Interviews. 34
3.5 Profiles of the Respondents. 36
3.6 Methods of Data analysis. 38
3.7 The Trustworthiness of the Research. 38
3.7.1 Ethical Considerations. 39
CHAPTER 4: RESULTS & FINDINGS. 42
4.2 The Case of Edeka Group. 42
4.3 Contributions of effectiveness and efficiency. 45
4.4 Measuring effectiveness and efficiency. 46
4.5 Equilibrating effectiveness and efficiency. 48
4.6 SCO through Efficiency & Effectiveness Equilibrium.. 50
CHAPTER 5: ANALYSIS & DISCUSSION.. 53
5.2 Identification Variables. 53
5.2.1 The Significant Variable. 53
5.2.2 Measuring Effectiveness & Efficiency. 57
5.2.3 Equilibrating Efficiency and Effectiveness. 59
5.2.4 SCO through Efficiency & Effectiveness Equilibrium.. 61
2.3.1 Managerial Implication. 62
5.3.2 Theoretical Implication. 63
CHAPTER 6: CONCLUSION & RECOMMENDATION.. 65
6.3.1 Limitations & Further Research. 68
Table 1: Sampling Criteria
Table 2: Age of respondents
Table 3: Education of respondents
Table 4: Edeka Subsidiary Companies 2015/ 2016
Figure 1: Conceptual Framework
Figure 2: FMCG Retailer Market-Share in DE, 2014
Figure 3: Managers Emphasis on Efficiency & Effectiveness
Figure 4: NPS Effectiveness Measurement
Figure 5: FMCG Manufacturer´s top Concerns
BC Before Christ
BU Business Unit
CM Conceptual Model
DC Distribution Centre
e.g. example given
EDI Electronic Data Interchange
etc. et cetera
FMCG Fast Moving Consumer Goods
IT Information Technology
JIT Just-in-Time
NPS Net Promoter Score
PM Performance Measurement
SC Supply Chain
SCM Supply Chain Management
SME Small and Medium Sized Entrepreneurs
VIP Value Improvement Projects
The Fast Moving Consumer Goods (FMCG) industry is one of the largest and fastest growing sectors in the world. According to recent statistics, over the past decades, the FMCG industry has been steadily growing. Understanding the nature of the Fast Moving Consumer Goods industry is very important for it forms the foundation of this research study. The industry consists of non-durable products for personal consumption such as household care, personal care, beverages, as well as foods (Vollmann, Cordon, & Heikkila, 2000). The sector is buoyed by intense competition and is characterized as both organized and unorganized. In addition to completion, another significant characteristic of FMCG industry is the robust distribution of networks. As explained by Wassenhove (2006), the industry is highly fragmented.
The FMCG industry is heavily driven by volume and one of its main features is low margins. In this industry, the products being sold are branded and are backed by heavy advertising, marketing as well as slick packaging among other characteristics. The industry is highly sensitive to price and responds to the market segments accordingly. One important consideration in this industry when making supply is the brand - this is because consumers of FMCG are highly brand conscious.
Fast Moving Consumer Goods are products characterized by relatively low cost and quick turnover. Such products are replaced quickly within a year, a factor that greatly affects the supply chain management in this industry. Some of the products included in this category are shaving products, tooth-cleaning products, soap, cosmetics, toiletries, detergents, paper products, bulbs, glassware, batteries, and plastic goods among others. Products such as consumer electronics, tissue paper, packaged food products, pharmaceuticals, soft drinks, and chocolate bars are also included in the Fast Moving Consumer Goods. After conducting an empirical study, Christopher and Ryals (1999) concluded that the Fast Moving Consumer Goods is the fourth largest economy in the world by market share.
In the modern business, players in the FMCG industry are constantly looking for ways to optimize the supply chain management. Lee, Padmanabhan, and Whang (1997) defined supply chain management as the overall oversight of information, materials, as well as finances that move in process from suppliers to consumers through wholesalers and retailers. This process actually involves the coordination and integration of the flow of materials, information, and finances within the business circle. For the purpose of supply chain efficiency, the FMCG industry needs to have well established distribution networks. The use of effectiveness and efficiency in the optimization of supply chain management in the FMCG industry is one area that this research study will focus on.
This research study was developed to highlight the effectiveness and efficiency as essential performance attributes of supply chain management in the Fast Moving Consumer Goods industry. For many years, effectiveness and efficiency have not been the due consideration when it comes to supply chain management in this industry. Traditionally, the Supply Chain Management practice in this industry has been given the perspective of components, processes, as well as topology.
The industry comprises of both durable and non-durable goods and mass movement of products is one of its critical elements. According to Dupre and Gruen (2004), an analysis of the FMCG industry indicates that a well-coordinated distribution network is the greatest strength of its supply chain management. In addition, Cooper, Lambert, and Pagh (1997) highlighted that agile and rapid responsiveness are the key differentiators of supply chain management in this industry. When it comes to supply chain management in the FMCG industry, rapid response has been identified as one of the key strengths of the FMCG industry - it is one of the essential requirements for enhancing performance of the supply chain management.
Because the FMCG industry has its own unique attributes and characteristics, there are specific constraints and interfaces that govern its supply chain – some of the constraints include manufacturing, procurement, customer service and logistics among others. According to Johnson (2001), suppliers and customers are also identified as essential components of its supply chain because buying and selling are the primary functions of the FMCG companies. On the other hand, making, moving and storing are really less consideration functions in the FMCG supply management and in most cases they are outsourced. According to a model developed by Hugos (2011), the supply chain in the FMCG industry actually, represents a typical structure of a simple manufacturing process consisting of very complex distribution networks interlinked together.
With this expansive background, the research study focused on the supply chain management in the Fast Moving Consumer Goods (FMCG) industry especially how to use effectiveness and efficiency to optimize it. When it comes to optimization of supply chain management, companies in the FMCG sector are rather concerned with cost, waste, time, labour force, among others while leaving out two important elements namely effectiveness and efficiency. The role of efficiency and effectiveness in the optimization of supply chain management in the FMCG industry need to be correctly understood and appreciated. The research study will also attempt to determine how efficiency and effectiveness are measured in the FMCG industry. These two objectives will set ways for understanding the relationship between supply chain performance and effectiveness and their effect on an FMCG organization.
The Fast Moving Consumer Goods industry in Germany is agile, quick and offers a wide range of both durable and non-durable products. The German FMCG industry is huge and is recognized by its large customer base and supply chains, which is largely seen as a role model for other industries in the country. In Germany, high volumes of product flows, less complex manufacturing processes as well as a close interaction with customers, characterize the FMCG industry. The FMCG industry in Germany is supported by very complex underlying supply chain setup. In addition to the complex underlying supply chain setup, the industry is underpinned by very innovative ideas that are generated very now and then.
The Fast Moving Consumer Goods industry in Germany is facing unique challenges and issues. Some issues and challenges such as the bullwhip effect is a serious concern in the German FMCG industry: this is a relatively small variability experienced in the customer demand as the market continuously expands. In Germany, the main organizational goal of every FMCG company is money making. In order to achieve this primary organizational goal, most supply chain departments of FMCG companies in Germany often try to find cheap suppliers and affordable manufacturing facilities. In addition, they try to use distribution centres, which are strategically located and target high volume markets in order to increase their profitability (Sarac, Absi, & Dauzere-Peres, 2010).
The market size of FMCG industry in Germany is growing steadily and is estimated to worth more than 136 billion US dollars. With the market value of about $65 billion, the consumer durable goods make up the largest share of the FMCG market in Germany. With so many companies and new ones being set up, the industry is highly competitive in Germany. According to the 2015 statistics, there are more than 2000 companies in this industry with a growth rate of 2.5% per annum. The industry contributes to the third largest employment opportunities in Germany. There is bright future prospect of FMCG industry in Germany due to the high growth rate, new opportunities and market value and size.
As explained by Lee (2002) and Sople (2012), optimization of supply chain management is the use of various processes and tools that would ensure that the manufacturing and distribution of supply chain attain optimal operation. Traditionally, in the FMCG and other industries, the approach given towards optimization of supply chain is the minimization of operation costs such as transport costs, manufacturing costs as well as distribution costs among others. In addition, the common approach towards optimization of supply chain is the optimal placement of inventory especially within the supply chain. The idea behind this approach is that with minimized coast, the supply chain would achieve its optimal operation.
In FMCG industry, the supply chain managers aim at increasing and maximizing the profitable operations of their companies, manufacturers, and distributors. Even though minimizing total operating expenses works for the industry, it is not the only possible way of optimizing the supply chain performance in Fast Moving Consumer Goods. Two considerable elements, which are thought of as possible ways of optimizing supply, chain management in the FMCG industry is increased efficiency and effectiveness. Over the past years, little attention has been given to the possibility of increasing effectiveness and efficiency as mechanism of optimizing supply chain management. Brandenburg (2013) asserted that having a tied, balanced, and well-functioning efficiency and effectiveness from the perspective of the retailers is beneficial for optimizing the performance of supply chain management.
Enhancing effectiveness and efficiency is a better way of improving the collaboration between suppliers and retailers thus a good idea for optimizing the overall performance of supply chain. Being an extended enterprise, the supply chain of Fast Moving Consumer Goods is gradually becoming a typical complex ecosystem that incorporates different technologies, people, as well as processes. Initially, the supply chain in this industry was exclusively comprised of majorly internal systems; however, that situation is no more. With the advancement of technology and the proliferation of computer networks and internet tools, the supply chain in FMCG industry has greatly expanded and new approaches to optimizing performance need to be incorporated.
The main problem in the FMCG industry which this research study attempted to solve is the over dependency of optimization of supply chain performance on mathematical tools and models. Traditionally, this approach involved minimization of operation costs such as transport cost, manufacturing costs as well as distribution costs among others. As explained by Armstrong et al (1996), the traditional approach often involves the use of complex mathematical models and techniques.
When it comes to the optimization of supply chain performance, as mentioned by Fisher et al (1994) and Bala, Prakash, and Kumar (2010) the companies in the FMCG sector are rather concerned with the minimization of cost, waste, time, labour force, among other cost elements than improving efficiency and effectiveness. This is a big problem in the industry because it does not consider the role of effectiveness and efficiency in the optimization of the performance of supply chain management. The major problem of focusing on cost minimization approach is that it does not express the benefits of having a tied, balanced, and well-functioning efficiency and effectiveness from the perspective of the retailers.
With the missing consideration of effectiveness and efficiency, the traditional approach to optimizing the performance of supply chain does not meet the customer satisfaction and goal-attainment purposes of the company. This is because the traditional mathematical approach does not measure elements of customer satisfaction and goal-attainment even though they play important roles in meeting the company’s goals of profit maximization. With the recent technology advancement in the supply chain management, manufacturers and retailers have been forced to evolve or perish when they consider optimizing their supply chain management practices.
Many authors and researchers such as Cheng and Choi (2009), Craig (2004), and Fisher et al (1994) have argued that efficiency and effectiveness are very important factors to consider when optimizing the performance of supply chain; however, their roles have not been correctly outlined. In addition, most companies in the FMCG industry do not have a clear way of striking balance between effectiveness and efficiency: in most cases, efficiency and effectiveness are not equilibrated. Understanding how to equilibrate efficiency and effectiveness, therefore, form key part of this research. Several researchers, such as Lee (2002), Sople (2012), Johnson (2001), and Hugos (2011), have investigated efficiency and effectiveness within the FMCG sector and found out that these two variables are not equilibrated along the supply chain. Thus, while the companies are adequately efficient, they neglect to be effective.
The research study was guided by the following four major objectives:
The study was guided by the following four major research questions:
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