Abstract
Supply chain performance measurement focuses on exploring how supply chains fair in the face of fluctuating markets and regulatory/governance frameworks. The Supply Chain Operations Reference (SCOR) model, which consists of five key processes: plan, source, make, deliver, and return, is one of the models used to measure SC performance. One of the most important activities having a significant strategic impact is sourcing. With SCs increasingly becoming digital, there is a need to explore how sourcing is affected. In this case, most of the implications are felt in such regards as supplier engagement. Companies have been forced to adapt to benefit from the new technologies. The idea is that digitization makes such supply chain practices as strategic sourcing more efficient and streamlined.
Introduction
In a highly competitive environment, businesses are forced to find means of satisfying the customers that give them an edge. According to Reddy, Rao, and Krishnanand (2019, p. 40), the competition has shifted from single corporations to the whole supply chain. As a result, the notion of supply chain management has become critical for businesses as they attempt to align all activities with the organization’s strategic goal. Similarly, an entity’s performance is determined by the efforts of the supply chain, which necessitates a performance evaluation of the entire chain. The concept of supply chain measurement performance systems (SCPMS) is becoming mainstream among business researchers (Maestrini et al., 2017, p. 299). Models, approaches, and best practices have been recommended and tested across different industries. Fast-moving consumer goods (FMCGs) comprise businesses that manufacture and sale of products with short shelf life. The commodities are either in high demand or highly perishable, for instance, pre-packaged food, drinks, and toiletries. Producers have to be keen that suppliers can provide quality raw materials at affordable prices, as well as comply with governance issues in business.
The topic of supply chain performance measurement (SCPM) as it relates to the FMCG business is examined in this article. The Supply Chain Operations Reference (SCOR) model is specifically targeted, and one of its important parts is examined. Sourcing is the chosen component where the current practices and trends associated with digitization are discussed in detail. Therefore, the paper offers a brief overview of the SCOR model, after which the effects of digitation on sourcing are outlined. The FMCGs industry is selected because it presents a perfect example of the interplay between the supply chain members and how their practices affect such aspects as consumer satisfaction.
Overview of Supply Chain Operations Reference (SCOR) Model
Measuring supply chain performance necessitates the use of the appropriate tools and models. The Supply Chain Council created the SCOR model in 1996, and it has been updated multiple times since then (Macchion, et al., 2017, p. 6). SCOR is a conceptual model that identifies the standard language critical in determining and comparing practices across the supply chains. Therefore, the model targets all corporate data, including product flows across the value chain. As a tool for strategic planning, companies can use the SCOR model to make both long- and short-term decisions. It also aids in the improvement of supply chain management strategies’ efficacy and efficiency. SCOR comprises five key processes to be considered at the strategic level: plan, source/procure, make/manufacture, deliver, and return. Each of these elements highlights a major component of supply operations and interactions among the businesses.
The first process is planning, which follows the core steps in the principles of management. In supply chain management, planning includes identifying resources, communicating with the relevant stakeholders, and aligning the organizational objectives with the demand and supply, as well as implementing best practices (IONOS, 2020). From a strategic perspective, all operations begin with a planning phase, which seeks to outline expectations in terms of activities, timelines, financials, and even consideration for contingencies. In the context of an FMCGs company, it would be expected that a producer plans such aspects as the acquisition of raw materials, inwards outwards logistics, costs, and storage for raw materials and finished products.
The second element in the SCOR model is sourcing, which describes the acquisition of materials and infrastructure. Depending on the nature and size of the business, sourcing can be accomplished simply by selecting suppliers and ordering materials as orders arise. Other industries have more complex chains, which means that corporations have to be actively engaged in the internal operations of their suppliers. In an age where sustainability is being increasingly adopted by organizations, it is not uncommon to find firms that engage in such practices as managing working conditions at the suppliers’ business (Macchion et al., 2017, p. 11). Recent developments in sourcing involve the incorporation of technologies, including big data (Brinch, et al., 2018, p. 559). As will be discussed later in detail, the evolution of sourcing practices has been necessitated by external pressure from such issues as sustainability and compliance with governance frameworks.
The third component of the SCOR model is ‘make,’ which simply implies the manufacturing and production decisions and operations. Three alternatives are available for businesses: engineer-to-order, make-to-order, and make-to-stock. However, this process often involves production, staging, packaging, and releasing products. Companies must make many key decisions in the context of supply chain operations performance management at this level. For example, growing automation means that the manufacturing process has to be designed such that humans are separated from robots where each can handle different tasks (Nokolakis et al., 2018, p. 9). Manufacturing is a success when proper materials are provided when needed and time and quality are not compromised.
Delivery is the fourth core process in the Score model, which involves such practices as warehousing, order management, and transportation. In many FMCGs industries, arrangements can be made between producers and distributors regarding delivery. Other players in the supply chain can have similar agreements depending on where a firm stands in the chain. In this case, the delivery element of the SCOR model measures several aspects, including promptness. Supply chain operations performance is also concerned with quality, which means that the businesses have to find means of achieving this trait through the delivery practices (Moazzam et al., 2018). In this scenario, performance can be measured in terms of order fulfillment and efficient transportation systems.
Lastly, return is the process that involves how a business handled returned packaging, containers, or defective products. In the FMCGs industry, managing product returns is a critical activity because the decisions made affect other supply chain operations (Mishra, Hopkinson, and Tidridge, 2018). For example, defective products could illustrate a flaw in the design or the production process. Losses can be incurred regardless of the reason for defects or the volume of returns if organizations fail to monitor the performance of the entire supply chain. Finding the source of the problem becomes the surest way of making sure that costs associated with returns are reduced.
Digital Technologies in Sourcing
Overview of Digitization in SC
Supply chain performance measurement is designed to support the mission and vision of businesses. One way of achieving this objective is through improved tactics, efficient strategies, and more effective decisions across all operations (Gawankar, Gunasekaran, and Kamble, 2019, p. 1575). Across the supply chains, one strategy that has worked well to support companies in their supply chain performance measurement practices is innovation, which includes both new products and technologies to improve customer satisfaction. Technology is particularly useful since many players in a supply chain are geographically disjointed and operate on different regulatory policies and distinct cultures (Saberi et al., 2018, p. 2117). Technology is used to remove these barriers to effective cooperation where information systems can be joined to offer a seamless flow of data. Therefore, supply chain performance under technological developments is significantly improved. An assessment of how digitalization affects one area of supply chain effectiveness, sourcing, is conducted to demonstrate this position.
Due to its implications on both performance and ambidexterity, digitization in supply chain management has gotten a lot of scholarly attention. Changes in technology have facilitated integration and innovation in supply chains (SCs), according to Bui et al. (2021, p. 387), where digital tools, the Internet of Things (IoT), big data, blockchain, and cloud computing have all changed SCs. One concept that illustrates the role of technology is additive manufacturing (AM), described by Meyer, Glas, and Eßig (2020, p. 3). AM has both disruptive and transformative potential across all industries, where the reduced vertical integration across companies allows suppliers to add significant value to the end products. Sourcing in AM models requires a strategic approach where potential sourcing levers represent the input factors that makes it possible to create a sourcing concept for the business. In this case, sourcing involves creating the best possible strategy for suppliers for the different product categories. In other words, such aspects as demand specification and the selection and contracting of suppliers are all redefined to allow the business to yield the optimal production output. In this case, digitization across the SCs affects sourcing decisions.
As illustrated above, using AM technologies, digitization is a disruptive process that forces businesses to rethink their SC practices. It is also important to consider the fact that consumer expectations also keep growing, for example, online trends causing a definite shift towards customization and individualization. In this case, the only response by the SCs is to become faster and more precise to serve the emerging needs (Alicke, Rexhauses, and Seyfert, 2017). When companies are faced with this problem, they reshape their SC practices, which means that their engagement with the suppliers has to reflect the consumer needs. Sourcing becomes a question of which vendor can best help a company achieve its strategic objectives. Consumer demands lead to a change in the nature and design of the product, which in turn affect the materials obtained from suppliers. In the FMCGs, the transformation is taking place at an unprecedented pace where novel ideas are turned into software (Bravo, 2020). A digital SC is created connecting all firms and even the customers to facilitate seamless operations.
Most FMCGs tend to rely on retailers who sell their products in the market. The digital supply chains have also necessitated new business models where retailers are increasingly moving from physical to online stores (Gunn, 2016). This is a change necessitated by the consumer trends where newer generations are increasingly reliant on new technologies. Therefore, many of the physical stores are not becoming mini-distribution centers where other SC activities, including inwards and outwards logistics, are conducted. From the perspective of the retailers, sourcing patterns can change because inventory levels could be predicted using the demand levels established through the use of modern technologies. These include advanced analytics that allows firms to analyze large data volumes to make critical decisions (Bravo, 2020). In other words, the era of big data analytics has emerged, which majorly entails the capability to gather, process, and gain meaningful insights from data collected in real-time (Belhadi et al., 2021, p. 3). In an FMCGs context, online orders can be processed in real-time to inform retailers how much of each product to deliver at the distribution centers to process for customer pick-ups.
Flexibility and Rapid Responses
The aspects of digital SCs are numerous, and each affects sourcing in different ways. For retailers of the FMCGs, reconfigurable SCs are those that can respond to the immediate needs of the business. The term X-networks was used by Dolgui, Ivanov, and Sokolov (2020, p. 4147) to refer to the reconfigurable SCs, which go beyond the application of such SC frameworks as sustainability, agile, lean, digital, and resilient. Businesses can use X-networks to quickly adapt production capacities and functionality in response to market and governance or regulatory changes. Manufacturers in the FMCGs are subject to sudden market changes because their production patterns are determined by the feedback from their retailers. At the process level, risk mitigation, resource preservation, and real-time inventory control are the key practices performed by manufacturers. Most importantly, the process level is also where sourcing activities take place. In this case, multiple sourcing is implemented either due to different materials or the need to distribute the burden across multiple suppliers. Retailers in FMCGs industries will use multiple sourcing strategies because their stores deal with more than one product from different manufacturers.
Rapid response to changes in the market requires SCs to be flexible, especially if the industry in question is the FMCGs. If sourcing decisions are made based on real-time data, it means that firms do not have a lot of time to make the necessary adjustments. Supply chain flexibility is a concept that has been discussed by Bui et al. (2021, p. 387), who state that the term ‘flexibility’ entails the ability to react to both long-term or immediate fluctuations in the market environment. This concept touches on all aspects of the SC, which include technology, demand and supply, and the environment. Sourcing flexibility has been defined as the ability to acquire materials and services under fluctuating market conditions. Digital supply chains have been designed to allow this flexibility since it offers businesses a lifeline in a highly competitive market. The competitive edge needs to be sustained for businesses to survive.
In the FMCGs, the markets are usually perfectly competitive because many firms and customers are present. Additionally, the products sold are often perfect substitutes, which means that consumers can easily switch to rival companies if their preferred brand fails to make important adjustments. When it comes to retailers, the stock levels are often determined by demand patterns, which means that producers have to ensure that their products are well-received in the market. The feedback from the retailers proves critical as these firms are often in direct contact with consumers. The idea of proactive strategies in sourcing and other SC activities requires the use of technologies, especially digital SC connectivity and SC automation (Belhadi et al., 2021, p. 4). The main argument is that digitization and automation make it possible to communicate in real-time with all SC players. Additionally, the systems can be easily reconfigured to new requirements much faster than it would be possible with manual and analog models. Sourcing means that the suppliers have to be connected to the firm’s information system where immediate messages and feedback are possible.
Resilience
In addition to flexibility, digitization in SC management improves resilience. Performance management in SC would be concerned with this construct because disruptions are a common occurrence. In this case, recovery is critical since the failure of one entity in an SC setting could cause others to fail. Digitization can be perceived as a matter of business model strategy where increased visibility, transparency, intelligence, and innovation help transform an organization into a resilient and responsive component of an SC ecosystem (Bienhaus and Haddud, 2018, p. 968). Sourcing can be used synonymously with procurement because similar activities are carried out. In other words, a firm decides on the suppliers and enters relevant contractual agreements with them. Even though procurement is one of the support activities, it can have strategic implications in supply chain management. Procurement can affect the continuity of a business operating in an environment where suppliers are highly vulnerable to disruptions. As mentioned earlier, such a scenario necessitates managing suppliers in addition to internal operations.
SC resilience has attracted the attention of scholars for the past few decades. According to Pettit, Croxton, and Fiksel (2019, p. 56), seminal papers published by Sheffi in 2005 and Christopher and Peck in 2004 kickstarted scholarly work on the construct. In addition, early definitions stated that resilience was defined as the ability to return to normal, survive, or adapt in the face of adversity. Rapid fluctuations are a key feature of the FMCGs industry, which means businesses should make an effort to pursue stability. In terms of SC performance, resilience ensures that downtimes are eliminated or minimized. Planning for any inconveniences means that sourcing is strategically done to ensure adequate buffers in case any of the suppliers’ malfunction. For example, when the disruption is only temporary, the retailers will have adequate stocks to sell until operations return to normal. After the permanent collapse of suppliers, retailers in an FMCGs market can have adequate time to find a replacement. Remaining connected to the suppliers through digital technologies means that these decisions can be made in real-time as firms can observe the activities of suppliers closely.
Greater emphasis is made on the aspects of flexibility and resilience since they determine the survival of businesses. The ongoing COVID-19 pandemic presents a perfect example of why resilience and flexibility in SC are critical performance metrics. With many companies having global supply chains, the crisis meant that closed borders and restricted movement made it impossible for businesses to carry on as usual. The demand and supply patterns were shattered, considering that demand for some products fell sharply when emerging demand for such products as disinfectants, masks, and sanitizers skyrocketed (Ivanov and Dolgui, 2020, p. 2904). In this case, resilient and flexible businesses were able to enter the new market and support their operations during the pandemic. On the contrary, most companies dealing in FMCGs closed down, which can be an indicator of the lack of resilience and flexibility. In SC performance measurement, digital connection across the SCs meant that some businesses were able to facilitate the movement of goods across the value chains to reach the consumers.
Sustainability
Sustainability is a crucial notion in supply chain performance measurement, and it is linked to SC components like lean, agile, resilience, and just-in-time. As demanded by both internal and external stakeholders, digitization is both a response to and a facilitator of sustainability. Today, consumers have become more aware of the externalities of business activities and are increasingly exerting pressure on companies to become more sustainable. Pursuing sustainability means that an organization understands the various dimensions and meets standards and expectations from consumers. Additionally, sustainability has to be achieved without comprising other aspects of SC performance, including quality and timely delivery. Digital tools mostly used by businesses to this end include bog data analytics that helps drive continuous improvement. In manufacturing, big data analytics offer producers the capability to innovate in the development of green products (Bag et al., 2020, p. 1). In this case, green products are those that pay attention to carbon footprint, pollution, and other forms of environmental protection.
After a company has established what green products are and how to produce them, it can extend some sustainability requirements to suppliers. Such an act is the embodiment of sustainable sourcing. Green production is becoming a buzzword in both research and practice as both researchers and organizational leaders attempt to find the best way to achieve sustainability goals. Many firms in the FMCGs industry have faced extreme pressure from consumers to become sustainable. An example is Tesco, a multinational general merchandise and groceries store based in Britain. Tesco has faced a backlash from customers because of sourcing beef from farmers in the Amazon, where massive deforestation is taking place. Recently, the company decided to drop these suppliers and adopt more sustainable ones (Phillips, 2020). Beef is a critical product that has to be made available across the stores. To address the issue of costs and prices, many retailers opt for suppliers with the best prices either as a result of new production technologies or economies of scale. Not all of them are sustainable, and consumers can force businesses to be unsustainable ones.
The Tesco example above illustrates why digitization in the SC helps improve sourcing strategies and practices and address the concerns of flexibility, sustainability, and resilience. Tesco should be more connected with the suppliers to ensure that they engage in sustainable practices. Additionally, Tesco can force those businesses to drop certain practices that go against its strategic objectives. Overall, digitization allows businesses to be updated and remain interconnected across the entire chain where sourcing practices can be accomplished seamlessly.
Conclusion
Supply chain performance measurement is a subject that attracts massive scholarly attention. It has been expressed that the changing business environment requires businesses to be more competitive, flexible, resilient, and sustainable. To achieve these objectives, the digitization of the SCs has emerged as the ultimate strategy. Performance is assessed using such models as SCOR, where key processes are outlined. In this paper, sourcing has been explored in the light of emerging digital SCs. Sourcing has been defined as the process of acquiring materials and infrastructure. In the context of FMCGs, raw materials have to be purchased in a timely manner since the processes have to keep pace with the demand. Sourcing practices and strategies in the FMCGs industry have been transformed by technology as businesses struggle to keep their consumers happy. First, innovativeness has been achieved by integrating such digital tools as IoT, blockchain, big data, and cloud computing. Second, sourcing and other SC activities are made faster to meet emerging demands. Lastly, real time data has made it possible to make rapid responses to a dynamic market.
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