EXPLORING SUPPLY CHAIN MANAGEMENT PRACTICES IN THE OMANI SMEs - PDF by gto88618

VIEWS: 93 PAGES: 6

									       EXPLORING SUPPLY CHAIN MANAGEMENT PRACTICES IN THE OMANI SMEs

                                 Ahmed Ali Al-Shahri, Rosnah Mohd Yusuff

            Department of Mechanical and Manufacturing Engineering, Faculty of Engineering,
                          Universiti Putra Malaysia, Serdang Selangor, Malaysia
           Tel.: +603 -8946 6342, E-mail: oman20000@hotmail.comm, rosnah@eng.upm.edu.my


Abstract: Supply chain management is the area that includes the planning and execution of supply chain that
ensures a coordinated flow within the manufacturer and among integrated companies. A typical supply chain
includes the inbound flow of goods from suppliers, the manufacture and assembly of sellable products,
warehousing and inventory tracking, order entry and order management, distribution across all channels,
and delivery to the end customer. This research investigates the extent to which the Omani industries
recognize the importance of supply chain management practice in their business process. The recent
developments in the international business arena have driven firms all over the world to adopt new
strategies for better product quality with low cost to ensure customer satisfaction. Hence, a well-executed
supply chain ensures that goal, knowing that major chunk of operation cost is attributed to material handling
and flow. Additionally, Oman 2020 vision requires companies to move up to the next level where they will be
able to compete on the international stage in order to achieve the promising objective. The research has
been conducted using a survey questionnaire, which has been designed to best capture the various factors
that contribute to SCM success. Those factors include performance measures, costs, outsourcing, demand
management, inventory management, IT utilization, and degree of integration. The results indicate that
supply chain management is valued in the business community in Oman and it is seen as an essential factor
that contributes significantly to business success. Moreover, the results prove that cost reduction is the prime
performance measure used to evaluate SCM success in the surveyed companies. Finally, the results show
that integration and IT utilization, which both considered as the backbone of SCM, are almost completely
neglected by the respondent organizations.

Keywords: Supply Chain Management, Performance Measures, Exploratory Study, Survey               questionnaire,
Small and Medium Scale Enterprise (SME), Oman


1. Introduction
A typical supply chain includes the inbound flow of goods from suppliers, the manufacture and assembly of
sellable products, warehousing and inventory tracking, order entry and order management, distribution
across all channels, and delivery to the end customer (Love, 2000). Suppliers and customers are no longer
talked about in isolation, rather linking them throughout the entire sequence of events that bring raw material
from its source of supply through different value-adding activities to the ultimate customer (Spekman,
Kamauff, & Myhr, 1998).

Several studies have been conducted on supply chain management practice in specific countries (Gilmour,
1995; Handfield & Withers, 1993; Ainsworth & Gold, 1995; Byrne & Markham, 1993; McMullan, 1996;
Fleury & Fleury, 1999; Basnet, et al., 2000; Preterouis, 2001; Sahay, Cavale & Mohan, 2003; Sahay &
Mohan, 2003).

On the contrary, there have been neither studies nor conferences, to the least extent, highlighting the
importance or the rule of supply chain management in Oman. Considering that the national economy is
dependent on oil and gas exports, the oil industry runs a highly sophisticated SCM system that is not needed
to be subjected to any tradeoffs. According to Shell online news, October 2003, Petroleum Development of
Oman (PDO) has linked up with Oman TradaNet (OTN) to utilize a digitized system which connects
electronically with 'vendors' - suppliers of goods and services to PDO - to transmit business documents
related to these goods and services. The system links with trading partners from over 2,000 organizations
that use OTN's online business center.



    35th International Conference on Computers and Industrial Engineering                                   105
On the other hand, small and medium scale enterprise involved in both manufacturing and service industries
are still at initial stages where only small manufacturing firms have surfaced in the mid 1980s. the reason
comes from the fact that the population is about 2.3 million (National Census Dec. 2003), which makes the
internal demand so low and as a result supply chain management does not become a real factor in this kind
of environment. Nonetheless, joining the World Trade Organization (WTO) will drive these local firms to
compete in the world stage and hence the performance has to be upgraded and must implement all the
initiatives and practices needed including supply chain management.

The main objective of this research is to explore the current situation of supply chain management and its
practices in the Omani SME’s. Since, this is the first research of its kind conducted on the Omani industry; it
will set the pace for further studies. Additionally, it provides an insight for managers, SCM personals, and
business strategists, which would be of a great benefit addressing at least some of their concerns regarding
supply chain management in the country.

2. Methodology
To fulfill the research objectives, a comprehensive questionnaire was used. The use of the questionnaire was
determined by the lack of data concerning supply chain management in Oman. The questionnaire has been
employed previously in India (Sahay & Mohan, 2003). Subsequently, the questionnaire was modified for use
in Oman. The questionnaire covers the areas that are seen as vital to supply chain management practices,
namely, supply chain management function, integration, IT systems, inventory and demand management,
costs, and outsourcing. Keeping in mind the small size of the Omani business environment, the survey
questionnaire was distributed to 160 small to medium scale companies selected from Oman Chamber of
Commerce and Industry list of roughly 1200 enterprises. The selection was intended to gather as much
representative data as possible. Thus, business activity, geographical location, and company size were basis
for the selection process. The analysis was conducted by comparing the responses of the various respondents.
The SPSS software was used to analyze the data.

3. Results and discussion
Out of the 160 questionnaires sent out, a total of 35 questionnaires were received with a response rate of
22%. The responding organizations were distributed over a large number of industries. For instance, 33%
were involved in food, 23% in automotive, which reflects the light industrial pace in the country. This
reflects the distribution of the population of SME’s in Oman, knowing that its industrial development is
directed mainly towards food industries in general, and those automotive firms considered to be agents of
multi-national cooperation that basically provide sale and maintenance services.

Furthermore, 17% of respondents were involved in general merchandise; other industries were chemicals,
electronics, and machinery (Figure 1). The person in charge of supply chain management is the general
manager (GM) in 32% of the companies (Figure 2), 29% of the companies has a manager responsible for
SCM and in 21% of the companies a director handles SCM function. This shows that all companies value the
importance of supply chain management and its role in business performance and customer satisfaction.
Additionally, this indicates that SCM is seen as a strategic function in many organizations given that it is
handled by top management personnel in the organization.




106                                    35th International Conference on Computers and Industrial Engineering
Figure 1 Classification of respondents by industry      Figure 2 Person in-charge of SCM

The respondents use a number of assessment indicators to evaluate and monitor their supply chain
management processes (Figure 3). Savings was the performance measure used by 52% of the companies,
followed by customer service levels where it’s been used by 27% of the companies. There were no measures
used in 6% of the respondents, which could be seen as low rate. Due to varying goals and strategies, each
supply chain requires its own appropriate measures that vary from supply chain to another. Hence, this
shows that the strategies for most of the respondents focus on cost reduction. The one fourth of the
respondents indicates that their strategies are customer-centered. Customer service strategies usually tend to
increase end-customer satisfaction. Unfortunately, the results shows that Omani companies still have to be
customer centered first in order to compete in a free market. After all, the sole purpose of SCM is to respond
to customer requirements as efficiently as possible. There was 9% of responding companies that do not have
SCM budget, and 27% do not know whether there is a budget or not or do not know how much the budget is.
In such cases the SCM budget is included in the overall operational budget. Nearly two thirds of the
respondent companies (64%) actually have budget in place (Figure 4).




        Figure 3 Performance measures in use            Figure 4 Supply chain budget

The average annual supply chain cost for those companies in FY 2003 was RO. 247,150 (USD 643,620),
which was accounted for an average of 19% of sales. In the area of out-sourcing, the most out-sourced
function of SCM is contract transporters where 38% of the companies consider it as the most important. A
quarter of the companies (26%) out-source their total logistic operations to a third party. Nonetheless, as
shown in Figure 5, 86% of the companies maintain their current level of third party services, and only a
small portion are thinking of increasing their scope of out-sourcing (14%).This indicates that, transportation
as a process was the most distinct choice for organization to out-source, hence organizations out-source
different functions for different reasons (Sahay, Cavale & Mohan, 2003).

Additionally, the low percentage in the companies using in-house developed IT solutions could be
contributed to the fact that having a well-developed solution is worth the investment and the Omani
companies are acknowledging the benefits of such advanced solutions. Another view could be simply the
fact that the Omani companies lack the qualified manpower in the IT field.



    35th International Conference on Computers and Industrial Engineering                                 107
As shown in Figure 7, (57%) of the respondents stress that their existing supply chain IT solutions cover
order fulfillment, and 29% for warehouse management. Most important to note is that more sophisticated
process for linking supply chain members like Electronic Data Interchange (EDI) does not exist at any of the
responding companies. This shows the mentality of having the best-in-class supply chain or business
performance is not yet within Omani industrial and service sectors, where information sharing along the
supply chain is the cornerstone of its functioning. The size of organization does not matter as fortunately the
cost of technology has been reduced so that even the smallest organization can now afford them (Sahay &
Mohan, 2003). Even though the government have provided the proper infrastructure through the
establishment of Knowledge Oasis Muscat and the rise of local IT companies such Oman Trade Net, inter-
organizational connectivity using supply chain solutions is still non existent within the SME’s community in
Oman.




Figure 6 The current degree of IT integration            Figure 7 Most SCM functions covered
                                                          by existing IT solutions

4. Conclusion
The analysis of the questionnaire and the discussion of the results are aimed at investigating the Omani
supply chain management practice and provide the core literature for further studies. It is obvious that all the
companies surveyed in this study value supply chain management and its role in their business operation.
Although the majority of the companies see supply chain management as a strategic function in promoting
business success, the coordination between various players in the chain is still conventional through e-mail,
telephone and fax. Tools such as EDI and ERP that have been used globally for decades are not utilized at all
in the respondent organizations.

This study shows that the execution of the supply chain management runs through series of discrete process,
where integration of the whole supply chain should be the core of its existence. This could be achieved
through re-engineering of supply chain which requires companies to change their management structure,
form strategic partnership with suppliers and customers, and enhance communication with supply chain
members through the right information technology solution.

Studies on how best to integrate the various supply chain members and the barriers in practicing SCM should
be the focus of further research in Omani SMEs. A larger sample should also be employed to give a more
comprehensive picture of SCM practices. Since supply chain management has become a key factor in
achieving an efficient business process performance in the new age of globalization, the Omani SME
community, as a whole, must realize its importance and act as soon as possible before loosing grounds to the
new comers. So, managers have to be alert to utilize the best in class technologies and processes.




108                                     35th International Conference on Computers and Industrial Engineering
References
1. Ainsworth, W.A. & Gold, S.Y. (1995). Logistics management and technology. Benchmarking Study,
    KPMG Peat Marwick LLP, Chicago, IL.
2. Basnet, C., Corner, J., Wisner, J., & Tan, K. (2000). Supply chain management: practice and
    performance in New Zealand, Collaborative research between University of Nevada, USA and
    University      of     Waikato,      New      Zealand.   http://www.mngt.waikato.ac.nz/depts/mnss/JIM/
    ResearchPapers/SCMinNZ.pdf, Accessed on 20/2/2004
3. Byrne, P.M. & Markham, W.J. (1993). Global logistics: only 10% of companies satisfy customers.
    Transportation and Distribution, 34 (12), 41-45.
4. Chan, F.T.S. & Qi, H.J. (2003). An innovative performance measurement method for supply chain
    management. Supply Chain Management: An International Journal, 8(3), 209-223.
5. Fleury, A. & Fleury, M. (1999). The formation of supply chains in developing countries: some evidences
    from the Brazilian industry. The 4th International Manufacturing Symposium: The Center for
    International Manufacturing, University of Cambridge, UK, September 1999.
6. Gilmour, P., Drive, H. & Hunt, R. (1995).Future directions for logistics in Australia. International
    Journal of Physical Distribution and Materials Management, 25(3), 24-32.
7. Handfield, R. & Withers, B. (1993). A comparison of logistics management in Hungary, China, Korea
    and Japan. Journal of Business Logistics, 14(1), 81-109.
8. Love, R. (2000). A beverage e-business primer. Beverage World. March 15, 100-104.
    http://www.findarticles.com/p/articles/, Accessed on 15/1/2004
9. McMullan, A. (1996). Supply chain management practices in Asia Pacific today. International Journal
    of Physical Distribution & Logistics Management, 26(10), 79-95
10. Oman yearly statistical book, 2003. Ministry of National Economy, Oman.
11. Pretorius, S.J.J. (2001). Effective supply chain management in the furniture retail industry; South Africa.
    Electronic Thesis and Dissertation, University of Pretoria, South Africa.
    http://upetd.up.ac.za/thesis/available/etd-01092003-135824/, Accessed on 15/1/2004
12. Sahay, B.S. & Mohan, R. (2003). Supply chain management practices in Indian industry. International
    Journal of Physical Distribution& Logistics Management, 33(7), 582-606
13. Sahay, B.S., Cavale, V., & Mohanm, R. (2003). The Indian supply chain architecture. Supply Chain
    Management: An International Journal, 8(2), 93-106.
14. Shell online news, October (2003), http:// www.shell.com/pressrelease2003, Accessed on 4/10/2004
15. Spekman, R.E., Kamauff, J.W., & Myhr, N. (1998). An empirical investigation into supply chain
    management: a perspective on partnerships. International Journal of Physical Distribution & Logistics
    Management, 53-67.




    35th International Conference on Computers and Industrial Engineering                                  109
110   35th International Conference on Computers and Industrial Engineering

								
To top