Peanutty food and company
Peanutty Food and company is a Brazilian company which is involved in business to business relationships and supply of ingredients to large consumers (Chengbo, 2009). Its business is centred on manufacturing and supplying of ingredients made from peanuts (mainly) and other nuts (secondarily) to food companies (ibid). It also provides services to food companies as regards to food preparation (ibid). It is a well-structured organization with four departments which are Research and Development, Production, logistics and Management (ibid).
In spite of its significant growth rates as shown by the volume of its operations and commitment to its customers, it is faced with some challenges which are as follows:
- It has only one supplier which supplies its raw materials resulting in the supplier having more bargaining power over them.
- Comparatively low planting and production of peanuts as compared to other countries which have greater competitive and comparative advantages
- Little bargaining power of peanutty over its customers
- No clear vision towards supply chain and future of the company
- Unbalanced hierarchy levels.
- Poor management due to centralised (one person) authority.
Therefore, in view of the above, this paper provides solutions to the questions below:
- In terms of supplier selection, managing supplier relationships and developing sourcing strategies, what strategies should Peanutty’s managers take to ensure the supply of raw materials for its operations, while reducing the risk of stockouts or high production costs?
- What activities could be developed by Peanutty to reduce or manage the power of its customers to minimize risks and maximize profitability?
- Critically evaluate the benefit of performance measurement systems to this company?
- (Given the four areas of the company (R&D, production, logistics and management), choose ONE supply chain process and suggest an appropriate performance measure and rationale for your choice?
SOLUTION TO QUESTION 1
Supplier Relationship Management (SRM) is defined according to the Institute of Supply Management as ” a mutual commitment over an extended time to work together to the mutual benefit of both parties, sharing relevant information and the risk and rewards of the relationship” (Chengbo, 2009). It provides a perfectly consistent relationship between a buyer and a supplier to make the most use of their capabilities and resources for the best support that can be found in the market.
Peanutty Food and company whose challenge has been how to manage its relationship with its supplier effectively, therefore needs to cultivate a seamless interaction with its supplier by following the steps below:
- Building Trust: The Bible says ” Two cannot walk together except they agree”. Trust is the fuel that keeps a relationship going. It is paramount in any society, organization, partnership or alliances. It is not just being in agreement but a mutual commitment between two or more parties as it can be derived from the definition above. Thus, it is indispensable for peanutty to ensure that mutual commitment is enshrined in its supplier relationship management. This enables peanutty and its supplier not only sharing information, but devoting time and resources to understand themselves which encourage the creation of goodwill in the long run (Wisner et al, 2008).
- Shared Vision and Objectives: Not only should peanutty have a clear goal and objective but its supplier should have mutual understanding of them (ibid). Supplier relationship management becomes successful when all the partners involved mutually agree to one another’s goals and objectives which form the basis of their relationship.
- Personal Relationship: Peanutty managers should stress more on their interpersonal relationships with their suppliers since communication among people is the vehicle that moves things in any relationship or partnership (ibid).
- Mutual Benefit and Needs: To solve the problem of Higher bargaining power of Supplier over Peanutty, there is a need for the company to be compatible in its needs with its supplier in order to ensure a win -win situation. Therefore, Peanutty needs to address the issue of their partnership with the cooperative society- Supplier to ensure that they are also happy with the bargaining reached in order to have a long lasting relationship.
- Commitment and Top Management Support: There is a popular saying that ”the bad person you know is better than the good person you have not seen”. Thus, Peanutty should dedicate the best people, resources to make its partnership succeed with its supplier (ibid). Wisner quoting from author Stephen R. Covey says ” without involvement, there is no commitment. Therefore, a high level of involvement should be committed to Peanutty’s partnership with its supplier which should start from top management levels to ensure a successful partnership (Wisner et al, 2008).
- Change Management: Managing change involves great effort (ibid). Peanutty faced with the challenge of reducing the stock out risk and producing at low costs needs to embark on global outsourcing for new suppliers while developing and maintaining a better relationship or partnership with its old time supplier. The suppliers can be sourced from USA because of its proximity or China because of its cheap labour and being the highest producer of peanut in the World. With this situation of sourcing for new supplier, come some changes- new partnership, new agreements and new government policies etc., which may affect its goal or vision (ibid). Thus, Peanutty should be focused to its set of core principles which should not change regardless of the situation (ibid).
- Information Sharing and Lines of Communication: Communication is the life wire of a relationship or partnership. Whether formal or informal, Peanutty should ensure there is a free flow of information in its partnership with its suppliers considering the fact that Trust and Confidentiality are very important to the success of its conveyance.
- Developing Relationship Capabilities: Do the suppliers have the right technologies, employees and resources to produce the right products according to the final consumer specifications? Are they flexible enough to attend to changes in customer requirements? These questions are very important and the answer to them, are the acid test that determines whether a supplier meets the requirement or not. Therefore, Peanutty should make sure that its suppliers meet its customer requirements in order to guarantee a long lasting relationship with them.
- Performance Metrics: There is a great need for Peanutty to evaluate its partnership performances with its suppliers putting into consideration quality, costs, delivery, and flexibility of the alliances or relationships. The evaluation system should not only be understood by both parties but also should be easy to measure and directed to the goal of the relationship. Thus, by performance measures, loopholes are detected and filled there by giving way for continuous improvement in the long run. Continuous improvement is a number of related small improvements which gives rise to the elimination of waste in the long run (Chengbo, 2009).
SOLUTION TO QUESTION 2
Customer Relationship Management according to Joel D. Wisner et al is ”the infrastructure that enables the delineation of and increase in customer value, and the correct means by which to motivate valuable customers to remain loyal- indeed to buy again” (Wisner et al, 2008). The school of thought that says, Customers are always right is very important and should be enshrined in every activity of an organization.
Customer Relationship Management is more than just developing a software application for its running, it is treating customers of an organization well, developing and maintaining a long -lasting and profitable with customers, and also developing an interpersonal relationship with customers from time to time (ibid).
Peanutty, may be faced with challenges of high bargaining power from its customers as a result of any of the followings (Recklies, 2001):
- Their customers may buy in large volumes
- The number of the supplying industry is large but of small operators
- The industry in which Peanutty belongs may operate with high fixed costs
- The ability of the customers to produce the products
- The products may not be strategically important to the customer
However, judging from the above, there is a need for Peanutty to build a stronger customer relationship base to ensure it manages the bargaining power and maximizes its profitability as they are examined below:
1. Customer Relationship Management Role: Peanutty should seek to be a good value-enhancing supplier to its customers by outsourcing for good suppliers, developing them and maintaining a win-win relationship with its old time customers; staying a good supplier itself and making sure that its customer have what it takes- reputations and ability to represent and meet with changing tastes of final consumers or end-users in the market (Chengbo, 2009).
2. Following the Key Tools and Component of Customer Relationship and keeping to them adeptly in the following ways:
- Segmenting the Market or customers: There is a need for Peanutty to arrange customers into groups in order to form a better communication system about its products (ibid). Doing this enables Peanutty to know what the customer wants, and the possibility of attending to different types of target markets in order to save a lot of costs and prevent the company from annoying its customers (Wisner et al, 2008). Also under target marketing efforts, we have Relationship Marketing which permits customers to choose whether to be mailed messages or not (ibid). Peanutty can also use Cross Selling method to sell additional products to its customers due to an earlier purchase of such products by its customers (ibid).
- Predicting Customer Behaviors: If Peanutty could understand the buying behaviours of its customers, it would be at an advantageous position to predict their future behaviours which enables it to forecast the products its customers are most likely to buy and pay for (ibid). As a result of this, Peanutty can plan ahead by looking into its policies in respect to its pricing, discounts and promotions in order to fine-tune it to meet its target customers’ requirements and thus minimize its cost in the long run (ibid). A more useful form of CRM that is a part of this category is Customer Churn which is also known as Customer Defection Analysis (ibid). Peanutty can use this as a way of reducing customer defections. A little improvement in retaining customers can have a greater increase in the profits of Peanutty (ibid).
- Personalizing Customer Communications: Knowing who your customers are, their needs and how they behave enables you to modify communications that suit the needs of your target customers (ibid). Forms of personalise marketing which can used by Peanutty are Clickstreams and Event-based Marketing. These enable Peanutty to generate some profits.
- Automated Sales Force Tools: This is a tool used for taking records of field activities, getting information across the home office, bring back past sales events and taking other company records that are specific (ibid). Peanutty can use this to manage the sales records of its customers whether on the field through its home office or business opportunities and flow of information through its sales people in order to generate a more accurate and timely decision making thereby improving the company ability to service its customers’ requirements (ibid). Some of the documents that fall under this category are Sales Activity Management, Sales Territory Management and Knowledge Management (ibid).
- Customer Service Capabilities: This is an important aspect of CRM initiatives. It emphasizes that the right product should be produced at the right time in the right quantity, in the right condition and at the right place for the right customer and finally at the right cost (Chengbo, 2009). Peanutty should consider the above and keep to it as its Seven Rule if it really wants to ensure a good relationship with its customers and make its customers glued to it with a high level of trust, confidentiality and commitment thus leading to managing the power of its customer. Under this category are Call Centres Service, Information Scripting and Website Self Service.
3. Designing and Implementing a Successful CRM Program: The steps below should be followed:
- Creating the CRM Plan: This involves setting the objective of the program, its suitability with the corporate strategy of Peanutty, its application, replacement of existing method, personnel requirement and the period and cost of implementation (ibid).
- Involving CRM users from the outset
- Selecting the right application and provider
- Integrate existing CRM application
- Establish Performance Measures
- Providing CRM Training for all users
SOLUTIONS TO QUESTION 3
Performance Measurement System is an evaluation system of a set of parameters that an organization uses to monitors its programs, investment and acquisitions to know whether they are meeting its strategies or not (Wikipedia, 2009). It also helps them to know if they are focusing more on results than behaviors or not.
Benefits of Performance Measurement
- Peanutty can evaluate the product quality, cost, delivery of the products that were supplied to end user through its food manufacturers.
- Have a better understanding of flexibility of the suppliers Improve the performance of the SC for both inbound and outbound logistic
- Evaluate the performance of the suppliers(cooperatives) and the company itself
- Develop and make better supplier communication and enhance SRM
- Minimize risk in terms of quality, cost, time and service.
- Make opportunities available for continuous improvement.
- With this performance measurement, the Peanutty employees are trained and they will have the complete information about the strategic goals.
- Because Performance Measurement focus on results, rather than behaviour, Peanutty’s managers can utilise this by measuring the performance of its employees by focusing on their contributions towards adding value to the organization (result) rather than behaviour.
- Bring into correct position, organizational activities and processes of achieving its goals.
- Peanutty can know whether it is meeting its customer requirements or not through Performance Measurement. As a result of this, it can manage the power of its customers.
- Through Performance Measurement peanutty can improve both its customer and suppliers relationship management, and make better its relationships with its employees. PM also enables it to know how this can be done.
- Problems of bias, longevity of cover up and emotions are easily made known and solved as a result of PM.
SOLUTION TO QUESTION 4
Given the four areas of the company (R&D, production, logistics and management), choose ONE supply chain process and suggest an appropriate performance measure and rationale for your choice?
Logistics is that aspect of supply chain process that plans, executes and manages the effectiveness and efficiency of both forward and reverse flow and storage of goods and services and other information that may have any bearing between the point of origin and the point of consumption for the purpose of meeting the requirements of customers (Wikipedia, 2009).
It is a very important and sensitive area in Peanutty because it manages the warehouse, importation and exportation of inputs and outputs, sales, internal and external distribution, third party materials and production delivery. Thus, it plays a very important role in Peanutty’s business strategy as a result of the followings
- It will put peanutty at a competitive advantage over its competitors as a result of necessary skills gained overtime in delivery speed, reliability, responsiveness and low cost distribution (Zacharia, 2004)
- Untimely delivery due to poor logistics leads to poor sales and thus loss of customers.
Therefore, in view of the above, the choice of appropriate performance measure is determined by the range of products of peanutty, its production, capacity utilisation and most importantly, its delivery link. An increase in the performance of any of these characteristics leads to possible reduction in costs, on time delivery, increased reliability, high level of dependability, flexibility, and thus customers’ satisfaction. The goal of a supply chain should be how to create value for their customers most importantly end user or consumer of a product. It is thus in this regard that the Performance Measures below are being suggested to be appropriated to the supply chain process of peanutty in accordance with World Class Performance Measure (Wisner et al, 2008):
LIST OF REFERENCES
- Chengbo, W. (2009) ” Supply Chain Design, Integration and Strategic Issues” Lecture Notes presented in November, 2009 to MSc. Operations and Business Management class, Glasgow Caledonian University, Glasgow.
- Recklies, D. (2001) ” Porters 5 Forces” January 1 2010. Available online at www.themanager.org/Model/p5f.htm
- Wikipedia (2009) ” Performance Measurement” January 3 2010. Available online at en.wikipedia.org/wiki/performance_management
- Wisner, J. et al (2008) ” Principles of Supply Chain Management” USA: South Western
- Zacharia G, Mentzer T.(2004) ”Logistics Salience in a Changing Environment” Journal of Business Logistics. January 4 2010. Available online at en.wikipedia.org/wiki/logistics_management