Role and Effect of Culture on Supply Chain Management
Supply chain is the set of activities performed to create and provide products or services to customer. It starts from acquiring raw material and converting it into finished goods and providing it to customers. The management and collaboration of all these supply chain partners to achieve efficiency of supply chain and gain competitive advantage for company is supply chain management (Craighead et al., 2007). The supply chain partners include suppliers, manufacturers, distributors and retailers. Efficient supply chain management helps companies across the chain to reduce their overall cost, improve customer service and financial position. The management and coordination of transfer of information, physical goods and finance is supply chain management (Fawcett and Magnan, 2002).
The integration of supply chain partners for the well being of each partner to provide extra value to customers is widely accepted as vital strategy to achieve organizational performance (Zhao et al., 2008). The coordination among members required mutual adaption of strategies which is difficult to achieve and implement (Wu et al, 2004). Studies on strategic alliances among supply chain partners indicate the high number of failure rate in order to achieve mutual benefits due to its complications in implementation (Park and Ungson, 2001).To successfully implement the desired strategy for alliances, it is important to first identify the factors and elements involved along with their impact on supply chain integration (Flynn et al., 2010).
Supply chain management and culture:
Culture of country and organization has a direct impact on the management of supply chain to achieve objectives of strong partnerships, trust along supply chain and readily and effective exchange of transformation and goods. The upbringing of collective minds in a group shapes same kind of expectations and develop similar type of behaviors which are mostly different from other groups, this uniqueness in behaviors and expectations is known as culture ( Hofstede, 2013). Corporate culture is collection of shared values, procedures, expectations , working behaviors and ethics across the company to conduct its business practices (Hofstede, 2010).
2.1. National Culture and SCM:
It is important for companies to identify the extent to which national culture of a country is supportive of making effective and efficient supply chain partnerships. On the other hand, a company has to assess the extent to overcome the negative or retain the positive impacts of national culture through organizational culture for effective supply chain management (Hope and Muehlemann, 2001). Understanding culture is vital to success for international organizations as studies have shown that decision making along supply chain has higher dependency on the factors of national culture. The culture of country impacts the decision of company regarding adopting strategy of low cost versus differentiation for its supply chain (Pagell et al., 2005). For example, the aim of making decisions in Western countries are short- term achievements along with focusing on short term employments and responsibility of individuals in making decisions. On the other hand, many Asian companies aim to achieve long term profits and returns by incorporating a culture of collective decision making and long term employment. American and European cultures focus on individualism while Asian cultures focus on collectivism (de Koster and Shinohara, 2006).
Ryu et al. (2006) examined the impact of collectivism versus individualism in his studies and found out countries with culture of collectivism such as Korea has better supply chain integration and relationships as compare to Western countries which rely on individualism .Several supply chain management decisions like outsourcing relationships, distribution channels, supplier selection and sale forecasting differ on the basis of country in which company is conducting business (Mello and Stank, 2005). The national culture of a country also has a huge impact on the management of supply chain hurdles or disruptions. In countries with Collectivism, the relationships are so strong that in case of disruption, the whole supply chain supports the company and help it to overcome disruption (Dowty and Wallace, 2010).
2.2. Organizational culture and SCM:
Organizational culture shapes the behaviors of conducting business of its employees which ultimately impacts directly on the strategic alliances’ along supply chain. The organizational culture of team work, supporting each other, sharing information and skills help a company to build stronger relationship with its supply chain partners. This culture develops skills of employees which help them to develop trust among partners (McCarter et al., 2005). Despite of supportive national culture for effective management of supply chain, lack of supportive organizational culture will not be able to get the fruitful results of strategic alliances (McAfee et al, 2002). Due to rising importance of supply chain integration and its link with organizational culture, several studies have been conducted showing a correlation between organizational culture and supply chain integration. Unsupportive organizational culture leads to failure in accomplishing the task of supply chain integration. On the other hand, companies are able to compete their competitors just on the basis of effective and efficient supply chain integration by making mutual beneficial strategic alliances.(Naor et al., 2008). For examples, Japanese companies which are subsidized by Europe were failed to achieve successful strategic alliances due to clasher and lack of team work in their organization (de Koster and Shinohara, 2006).
By realizing the importance of right organizational culture for supply chain integration, many firms have reengineered themselves just to bring a change in culture to be supportive of effective supply chain management. A right culture will help organization to achieve the benefits of supply chain management which can help them to achieve a sustainable competitive advantage. Firms are now focusing on cross functional behaviors in order to have a culture of developing relationships and working with others with trust (Schein, 2010). With the evolution of supply chain integration, now it is a need for organizations to identify the cultures supportive of supply chain integration and shaping their culture accordingly (Tereza and Fleury, 2009).
Culture and Production:
The productivity of a firm in production depends on its internal culture along with national culture of being supportive along the supply chain for making effective production systems. Low cost or efficient production systems would be beneficial not only for the manufacturer but each partner along supply chain. A success of product does not only bring profits to manufacturing firm but it achieves the objective of overall well being of supply chain by increasing the demand of each element of supply chain. The gap in productivity of production between American and Japanese firms is mainly due to difference in cultural values of both countries (Roh et al, 2008). The manufacturing performance of companies across the globe differs from each other just to their variation in national culture which also shapes much of organizational culture (Naor et al, 2008).
According to Kaasa and Vadi (2010), Innovation in products and production process is higher and successful in countries having a culture of collectivism as compare to individualism based cultures. It is confirmed with a real life example of fire in production unit of Aisin Seiki who is biggest supplier of Toyota for providing brakes. Due to unavailability of brake by Aisin Seiki, the potential loss of Toyota could be billion dollars due to shutting down production for few days as it would take few months for Aisin Seki to rebuild its facility. But due to culture of collectivism in Japan, over two hundred suppliers with little experience of supplying brakes responded to Toyota’s call and provided the desired number of brakes which enables Toyota to start its operations from very next day (Sheffi , 2007). Whereas in the culture of individualism in Germany , a German car door supplier who supplies its doors to major car manufacturers caught a fire at production facility and it took them three weeks to provide doors from alternate sources (Whitney et al., 2012). Due to this delay in alternate source, companies face several issues in manufacturing their cars resulting in losses to companies across the supply chain.
Organizational culture impacts manufacturing performance within the controllable elements of manufacturing. The relationship with suppliers to adapt and implement strategy of JIT in Japanese companies is highly successful due to its effectiveness in their own company employee’s performance. The culture of Japanese companies to remove all bottle necks and work with zero inventory have made them the most impactful and cost efficient manufacturers in the world (Sheffi , 2007).
Culture and procurement:
The decision of procurement and supplier selection is crucial to companies for effectively managing its supply chain. The culture of country and company in procurement and suppler selection effects to a greater extent. Handsome amount of literature can be found on the studies showing the impact of culture on the decision regarding procurement due to difference in ethical behaviors and consumer product evaluations in different cultures (Briley et al, 2000). The culture of being committed to fulfill the contracts or being efficient towards your work is one of the main factors which help to make decisions regarding supplier selection. In US and European culture, it is considered as the moral and legal obligation of a company to full till the terms of contract and even verbal commitments. While it is not the case in many developing countries, they do not tend to fulfill their commitments many times due to their inefficiency in business operations (Jung, 2002).
Organizational culture impacts the personal judgment regarding a particular supplier and it is the organizational culture which makes strong relationships with their suppliers in a national culture of collectivism. If a company operates in a culture of collectivism with organizational culture of individualism, the chances of failure increase for supply chain integration with respect to procurement (Berthon et al, 2001). According to Bradley (2001), culture of country is one of the major aspects while selecting a supplier and adapting and implementing a procurement strategy. A Japanese company who follows the concept of JIT would be reluctant to manage its supplier relations with a culture of being late or not providing orders on time. They would not prefer a company who are unable to support JIT system due to its national and company culture. For a company following JIT working in country who does not have a culture of working with JIT systems, it would be difficult to manage procurement. Many Asian countries base their relationships with suppliers and customers on the flexibility they show in credit terms. More flexible credit terms means higher chances of trust and stronger relationships. If a company is supplying a business product, it is important to find out the culture of credit terms in a specific country. As many Asian developing countries prefer to buy from manufacturers who give flexible credit terms. Keeping in view national culture, a company should be flexible in giving credit terms. While in the case of US and European countries, company seek for profit rather than flexibility and comfort leve of conducting business (Carter et al., 2010).
There is increased culture of involving suppliers in product develop of company. Close integration and relationship with suppliers would help companies to better understand the areas of product development(Koufteros et al, 2005). Western companies seek for suppliers who can provide them enough expertise and information for product development (Koufteros et al, 2007). On the other hand, many developing Asian countries take their suppliers just as other companies. They do not consider them the part of their chain and does not look for mutual benefits. The behavior of considering or involving your suppliers in product development have no presence as they seek suppliers with low cost and long credit terms (Harps, 2003).
Culture and its impact on logistics and transportation:
Previously, the planning and operating part were given most importance in logistics management but the important of Human resource in logistics has been realized. As other factors are affected by national and organizational culture, same is the case with logistics management. Logistics management des require the coordination of different functions of company including warehouse is one of the key element to support impactful logistics management (Chapman et al., 2002). The cross functional coordination within a company is required to manage effective logistics operations. A lack of coordination with warehousing would never let the logistics strategy implement perfectly. So the culture of cross functional support and effectiveness will bring positive results for logistics management (Ellinger, 2000).
Persons are different with different behaviors and perceptions shaped by their culture. It is the people who are going to handle company’s products which are in the process of transferring. It is crucial part of developing trust among people who come from different background and education level dealing in logistics. Here comes the culture of organization to manage effective relationships with its transporters and people dealing with logistics management (Boon and Wong, 2011).
In US, companies seek for profit, if working with someone gives your profit; it’s a fair deal for US companies. The case is different in Asian countries; they are not going to be your business partner until they feel comfortable with doing business with you. Specially contracting with logistics companies, they are highly reluctant to enter into contracts with companies they are not feeling comfortable in dealing. US and European companies face a degree of difficulties to become their logistics partners as they feel distanced with US companies. On the other hand, it is not important for US companies to feel comfortable but they seek for growth and returns (McGinnis and Spillan, 2003).
The culture of a country effects the decision of a business in developing logistics strategy. If other companies of country are using low cost mode for transferring its products and customers are willing to wait for low cost. It shows the culture of a country to give importance to low cost rather than giving to quick delivery. If the product of a company is functional and culture of country is supportive of low cost means of transportations, adapting a strategy of quick transferring of good with high cost would most probably result in failure of your effective logistics management (Harps, 2003).
Culture and distribution:
Distribution system is the flow of product, information or service from supplier towards consumer. Certain factors are concerned in distribution management which are time, place and control. The implication of all factors varies with change in culture and organization (Beugelsdijk et al., 2006). Organizational culture of developing strong relationships would help companies not only in effective distribution management but it would provide proper feedback of customers regarding your products. The culture of not promoting relationship with distributors would harm your company and distributor would most probably be waiting to move to a better supplier.
From national perspective, it is important to consider how the people of country would like to buy your product; either they would prefer to buy in bulk from whole sale or in small quantities (Boon-itt & Wong, 2011). A product which is considered as a functional product in Western countries maybe a highly luxurious product in developing countries like Iphone or S8 from Samsung. Now it is important to design a distribution system for Western companies which decreases the overall cost as they would not pay extra for something they perceive as functional and product of day to day use. In developing countries, they are willing to pay extra for luxurious products so the companies can afford expensive distribution channels if they need to do so (Ensari & Murphy, 2003).
Companies who enter new foreign markets must identify the pattern for their product for distribution. It is quite possible that due to high demand or strong hold of wholesalers in new market, you are required to be facilitated by a whole saler which may not be the case in your host country (Chopra & Sodhi, 2004) The decision regarding selling direct to customer through retailing or going to customers indirectly through wholesaler does not only depend upon the financial capability but the circumstances and external environment of country. Unless, you are not accustomed with the values and cultures of particular company, your ability to sale directly from company owned retail stores would be harmful (Javidan & House, 2001).
A very crucial factor is timing of providing product. As in case of Japan, they are reluctant to build inventories and place orders when required instead of bearing cost for inventory storage. Their customers require products on timely basis with low costing but the management of their companies re so impressive that they are able to manage just in time inventory system in most of cases. It would be difficult for any foreign company to enter in Japanese as well as Chinese market and compete with already existing firms to adapt this culture, foreign companies who are already relying on low inventory assets would be successful in adapting the culture of Japan (Jia & Rutherford , 2010).
Supply chain integration is an integral part for companies to become successful and gain competitive advantage which can be sustained by effective strategic alliances. It has become evident to form strategic alliances with the objective of achieving positive results of all partners along supply chain. This success in strategic alliances helps all partners along supply chain to be more efficient and cost effective than before. National and organizational culture creates impact in supply chain management. The studies showed the clear impact of national and organizational culture across all elements of supply chain such as procurement, production, logistics and distribution. The behavior and procedure of procurement and selection of employees along with production procedures and other processes of supply chain varies in Japan as compare to Western companies. Clear understanding of national culture along with organizational culture supportive of supply chain integration would help companies to adapt to new markets and develop and implement a strategy aligned to national cultures. This alignment in strategy with national culture and molding your organizational culture with the requirements will increase the probability of achieving efficient supply chain along with high chances of providing sustainable competitive advantage. It is recommended to all organizations to analyze the cultural impact before making a decision regarding any element of supply chain.
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