In today’s globalised and complex business environment, firms are ever more vulnerable to supply chain disruptions, originating both internally and externally from the supply chain. Supply chain resilience minimises the impact of a disruption through design approaches, which allows the supply chain to respond appropriately to disruptive events.
This article investigated the supply chain risks faced by grocery manufacturers in the South African fast-moving consumer goods (FMCG) industry and explored supply chain design approaches that enable supply chain resilience.
South African grocery manufacturers are faced with distinct risks. Whilst supply chain risk management studies have provided firms with certain guidelines to mitigate risk, supply chains are still vulnerable to unanticipated risks. Literature on supply chain resilience in the South African context is scant. The concept of supply chain resilience provides firms with strategies that are built into the supply chain that allow firms to react and recover swiftly from disruptions. Furthermore, supply chain resilience strategies assist firms in becoming less vulnerable to possible disruptions.
This study was conducted by using a descriptive qualitative research design. Data were collected through semi-structured interviews with senior supply chain practitioners specifically within the South African FMCG grocery manufacturing industry.
The study found that labour unrest is the most common risk faced by the industry. Furthermore, strategic stock and supply chain mapping are of the most useful design approaches to enhance supply chain resilience.
The study provides managers with new insights in guiding supply chain design decisions for resilient supply chains. Through the identification of risks and appropriate solutions linked to the various risks, the study allows managers an array of options to choose from when enforcing a resilient supply chain.
The study contributes to the body of knowledge by being one of the first empirical studies conducted on supply chain design approaches for supply chain resilience in the South African context. The study also adds to the scarce literature on supply chain resilience in the FMCG industry, both globally and in a South African context.
A supply chain refers to:
a network of organisations that are involved through upstream and downstream relationships, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer. (Azadeh
A failure of an element in a supply chain causes a ripple effect of disruptions for potentially all associating firms, upstream and downstream (Azadeh
Supply chain disruptions are a reality, and it is not a matter of
Supply chain risk management (SCRM) studies have gained increased attention and are aimed at developing approaches for the identification, assessment, analysis and management of risk areas in supply chains (Lavastre, Gunasekaran & Spalanzani
Supply chain risks are driven by a variety of internal and external forces. Macro trends such as globalisation and global connectivity provide opportunities for diversification of supply yet also result in a more complex supply chain susceptible to an amplified impact of risks when they occur (Deloitte
At the same time, the era of customer focus brings service to the forefront. Customers are becoming increasingly demanding, with changing needs owing to increased globalisation and product variety, as well as cheaper substitutes for products from foreign markets (Bala, Kumar & Prakash
Literature studies on supply chain resilience and more specifically strategies for resilience, originate from the seminal work by Christopher and Peck (
Various studies have emanated from the Christopher and Peck (
Review of the literature on supply chain design strategies for supply chain resilience.
Authors | Summary of findings |
---|---|
Christopher and Peck ( |
Four approaches to creating a resilient supply chain: Supply chain re-engineering through design, supply chain collaboration, supply chain agility and the creation of a supply chain risk management culture. |
Tang ( |
Robust supply chain strategies: Postponement, strategic stock, flexible supply base, flexible transportation, make-and-buy decisions, dynamic assortment. |
Manuj and Mentzer ( |
Flexibility of the supply chain is seen as one of the most important factors that affect the selection of risk management strategies. |
Oke and Gopalakrishnan ( |
Risk categorization: Supply risks (imports, climate, man-made disasters, natural disasters, loss of key suppliers), demand risks (variability in demand and forecasting error). Flexibility is seen as a strong mitigating strategy. |
Ponomarov and Holcomb ( |
Resilience capabilities: Readiness, response (flexibility) and recovery. |
Juttner and Maklan ( |
Redundancy in terms of resources seem to primarily aid in the flexibility of the supply chain and consequently improve resilience. |
Carvalho and Cruz-Machado ( |
Emphasise redundancy and flexibility as important strategies for resilience. |
Christopher and Holweg ( |
Structural flexibility strategies: dual sourcing, asset sharing and postponement. |
Soni and Jain ( |
Supply chain resilience framework: Flexibility, visibility, adaptability, collaboration and sustainability. |
Blackhurst, Dunn and Craighead ( |
Five of seven automotive manufacturers discussed holding safety stock throughout the supply chain as a primary strategy to mitigate disruptions. Strategic placing of inventory was also emphasised. |
Klibi and Martel ( |
Significant supply chain modelling is used to map disruptions and include flexibility and redundancy in the supply chain. |
Azadeh |
Redundancy and visibility are the most important factors for resilience. |
Melnyk |
Eight categories of resilience-oriented investments: Discovery, information, supply chain design-flexibility and supply chain configuration, buffers, operating flexibility, security, preparedness and indirect investments. |
This study focused on supply chain design approaches, geared to building capacity, through flexibility and redundancy, at potential pinch points to ensure continuity of operations (Christopher & Peck
The fast-moving consumer goods (FMCG) industry is described as the largest industry in the world, being rapid and agile and comprising of a number of product variants (Bala & Kumar
Previous studies by Battezzati and Magnani (
Summary of applicable literature on the fast-moving consumer goods industry.
Author | Summary of findings |
---|---|
Battezzati and Magnani ( |
Identify the change in consumers demand and propose the adoption of postponement as a design strategy. |
Diehl and Spinler ( |
The study provides a risk identification framework based on the SCOR model using the FMCG industry as the core focus. Furthermore, the study provides clarification on the term SCRM. Risk is seen as an opportunity and danger or as danger alone. |
Bala and Kumar ( |
Highlights the importance of the FMCG industry. Issues identified in FMCG include supply chain adaptability and the bullwhip effect. Supply chain performance attributes-reliability, responsiveness, agility. |
Bala |
Highlight various risks faced by FMCG and its impact. Provides an SCRM approach to mitigate the risks. |
FMCG, fast-moving consumer goods; SCRM, supply chain risk management.
Adequate supply chain design strategies are required to assist firms to become more resilient and less vulnerable to disturbances (Klibi & Martel
Whilst most studies on supply chain resilience strategies have been carried out in Europe, Asia and North America, empirical research on the topic in South Africa remains scant (Kamalahmadi & Parast
The qualitative study was carried out in a cross-sectional manner through semi-structured interviews. This study was guided by the following research questions:
What are the supply chain risks faced by the South African FMCG grocery manufacturing sector?
Which supply chain design strategies are used in the South African FMCG grocery manufacturing sector to facilitate supply chain resilience?
To what extent is supply chain mapping used by South African FMCG grocery manufacturers?
What are the trade-offs between balancing cost savings and the implementation of costly supply chain design strategies?
This study contributes to the body of knowledge by being one of the first empirical studies to explore supply chain design approaches for supply chain resilience in the South African context. The study bridges the gap of scarce literature on the FMCG industry in both global and South African contexts. The identified design approaches that facilitate supply chain resilience can add valuable insights for practitioners and academics in guiding supply chain design decisions for resilient supply chains (Ishfaq
Supply chain risk is defined as ‘the variation in the distribution of possible supply chain outcomes, their likelihoods, and their subjective values’ (Colicchia
Customers are becoming increasingly demanding, with changing needs owing to increased globalisation and product variety, as well as cheaper substitutes for products from foreign markets (Bala
Manuj and Mentzer (
Demand risks are those that take place in the flow of goods from the focal firm to the market. These include stock-outs, obsolescence, demand variations because of seasonality and the bullwhip effect. The latter entails spikes in demand because of a time delay in information flow and batch ordering behaviour by consumers (Bertolini, Bottani & Lewandowski
Macro-environmental risks can occur at a single point in the supply chain but will ultimately affect the entire chain. Examples include economic crises, political instabilities, natural disasters and regulatory requirements which could lead to product recalls and food safety scares, especially in the food supply chain (Christopher
In 2013, South African food manufacturers suffered from food labelling scandals because of unlawfully modifying, substituting and removing food labels. According to a report by Price Waterhouse Coopers, this came as a result of a change in food labelling regulations which have over the years become more stringent and in turn affected the food manufacturers (Price Waterhouse Coopers
Azadeh
Redundancy is the strategic availability of additional capacity and/or inventory at potential pinch points (Juttner & Maklan
Marchese and Paramaslvam (
In order for a supply chain to be resilient, these capabilities (flexibility, redundancy and visibility) need to be designed into the supply chain to quickly react to disruptions and maintain continuity of operations (Christopher & Peck
To efficiently counter a disruption, Tang (
Strategic stock requires firms to store inventories at strategic locations that can be shared amongst supply chain partners. In the case of a disruption, these shared inventories will allow the firms to allocate the strategic stock to the affected area (Barroso
Peck (
Christopher and Peck (
Christopher and Peck (
Based on the recurring design approaches mentioned by Christopher and Peck (
According to Diabat
Link between risks and mitigating supply chain design approaches (a literature perspective).
Risk categories | Examples | Design approaches |
---|---|---|
Supply risks – high frequency and moderate impact | Delivery delays/failures; Quality issues; Inflexibility of suppliers to react to macro-environmental risks | Multi-sourcing; Strategic stock; Redundancy; Decentralisation |
Demand risks – moderate frequency and high impact | Volatile demand | Supply chain mapping; Postponement; Decentralisation |
Macro-environmental risks – low frequency and high impact | Power outages; Natural disasters; Strikes | Mapping supply chain for clear visibility of pinch points |
After taking the most prevalent risks into account, their frequency of occurrence and impact, it can be seen that supply risks are encountered more frequently. There are also a number of design strategies available that can be engineered into the supply chain for resilience.
This study explored the risks experienced by South African FMCG grocery retailers and matched the applicability of design approaches for resilience.
A descriptive qualitative research design was used. This research design is particularly suited to provide a rich and detailed description of the experiences of multiple participants of a specific phenomenon or of their views, opinions or perspectives on a specific topic (Neergaard
The unit of analysis for this study was FMCG grocery manufacturers in South Africa. Twelve organisations agreed to participate, allowing for a total of 12 face-to-face semi-structured interviews. According to Rowley (
The final sample size was determined by the guidelines of Guest, Bunce and Johnson (
Homogenous sampling was also used to select the individual participants for this study (Polit & Beck
A pilot study was conducted with one industry practitioner with relevant experience to verify the suitability of the questions in the discussion guide and the time required to cover all the questions, as suggested by Ey, Zuo and Han (
Data collection was then initiated. The following 12 semi-structured interviews lasted on average 68 minutes and were conducted at the participant’s office or in a meeting room at their offices. Permission to audio-record was granted in all 12 interviews.
The researcher transcribed 10 out of the 12 interviews. The remaining two interviews were transcribed by a professional transcription service due to capacity and time constraints. To ensure the accuracy of the transcripts, the researcher listened to each recording whilst reading the transcripts and making amendments to accurately reflect the actual recording.
To analyse the data collected in this study, a thematic analysis was conducted. Braun and Clarke (
This study was approved by the applicable Research Ethics Committee at the researchers’ university. Prior to the interviews, all participants were required to read through and sign an informed consent form. The consent form explained the purpose of the study and emphasised that participation in the study was voluntary and that the participant could withdraw at any time. Anonymity and confidentiality were also assured and communicated to the participant. The pseudonyms listed in
Participants’ profiles.
Pseudonym | Position | Firm | Length of interview (minutes) |
---|---|---|---|
P1 | Planning Manager | F1 | 69 |
P2 | Customer Service and Logistics Director | F2 | 66 |
P3 | General Manager | F3 | 70 |
P4 | Supply Chain Development Manager | F4 | 86 |
P5 | Supply Chain Executive | F5 | 97 |
P6 | Integrated Business Planning Manager | F6 | 60 |
P7 | Head of Supply Chain | F7 | 58 |
P8 | International Supply Chain Manager | F8 | 52 |
P9 | Plant Manager | F9 | 65 |
P10 | Supply Chain Manager | F10 | 56 |
P11 | Integrated Business Planning Lead | F11 | 65 |
P12 |
General Manager: Supply Chain |
F12 |
77 |
Reliability was ensured by complying with the criteria of credibility and transferability. Firstly, frequent debriefing sessions were held with a seasoned supply chain academic, as well as with a specialist in research methodology. This allowed the study to be under scrutiny by detached individuals who offered fresh perspectives and challenged any biases and preferences by the researchers. Secondly, iterative questioning through the use of probes allowed the researchers to elicit detailed data and uncover any deliberate lies (Shenton
Closely tied with transferability, the criteria of dependability was met through a detailed explanation of the grocery retailers who participated in this study by clearly mentioning the different product categories represented under each retailer (Shenton
The result of the thematic analysis done is shown in
Frequency table of codes.
Codes | P1 | P2 | P3 | P4 | P5 | P6 | P7 | P8 | P9 | P10 | P11 | P12 | Frequency |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Code 3: Labour unrest risk | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 12 |
Code 11: Cost versus availability trade-off | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 12 |
Code 18: Strategic stock | 1 | 1 | 1 | 1 | 1 | 1 | - | 1 | 1 | 1 | 1 | 1 | 11 |
Code 1: Supplier risk | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | - | 1 | 1 | 11 |
Code 4: Multi-sourcing | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | - | 1 | 11 |
Code 8: Flexible transportation arrangements | 1 | 1 | 1 | 1 | - | 1 | 1 | 1 | 1 | 1 | 1 | - | 10 |
Code 22: Global sourcing | 1 | 1 | 1 | 1 | 1 | - | 1 | 1 | 1 | 1 | 1 | - | 10 |
Code 7: Supplier selection | 1 | 1 | 1 | 1 | 1 | - | 1 | 1 | 1 | 1 | - | - | 9 |
Code 10: Mapping | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | - | - | - | 9 |
Code 60: Strict supplier selection | - | 1 | 1 | 1 | 1 | - | 1 | 1 | 1 | - | 1 | 1 | 9 |
Code 71: Moderate to high frequency of labour unrest risk | 1 | 1 | 1 | 1 | 1 | 1 | - | 1 | 1 | - | - | 1 | 9 |
Code 20: Consolidation of facilities-move towards centralised facilities | 1 | 1 | - | 1 | 1 | 1 | 1 | 1 | 1 | - | - | - | 8 |
Code 24: Flexible strategies | 1 | - | 1 | 1 | - | 1 | 1 | 1 | 1 | - | - | 1 | 8 |
Code 44: Local packaging suppliers risk | 1 | - | - | - | 1 | 1 | 1 | 1 | 1 | 1 | 1 | - | 8 |
Code 70: High impact of supplier risk | 1 | 1 | 1 | - | 1 | 1 | - | 1 | 1 | - | - | 1 | 8 |
Code 74: Low to moderate frequency supplier risk | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | - | - | - | - | 8 |
Code 27: Disadvantages of local sourcing | 1 | - | 1 | - | 1 | - | 1 | - | 1 | 1 | 1 | - | 7 |
Code 33: Volatile demand (demand risk) | - | - | - | 1 | 1 | - | 1 | 1 | 1 | 1 | 1 | - | 7 |
Code 37: Centralised model | - | - | 1 | - | 1 | - | 1 | - | 1 | 1 | 1 | 1 | 7 |
Code 15: Forecast risk | 1 | 1 | - | 1 | 1 | - | - | 1 | - | - | 1 | - | 6 |
Code 40: Electricity risk | - | - | 1 | 1 | 1 | 1 | - | - | - | - | - | - | 4 |
Code 65: Multiple factories-Flexibility and redundancy | - | 1 | - | 1 | - | - | 1 | 1 | - | - | - | - | 4 |
Code 66: Multiple distribution centres-Flexibility and redundancy [supply chain network] | - | 1 | - | 1 | - | - | - | 1 | - | - | 1 | - | 4 |
Code 88: Factory redesign | - | - | 1 | - | - | - | - | - | - | - | - | 1 | 2 |
Four main themes were identified from the data analysis, each of which is supplemented by sub-themes as indicated in
Summary of themes and sub-themes.
Supply chain risks refer to three main risks, namely demand, supply and macro-environmental risks.
Volatile demand was identified as a risk affecting 7 of the 12 participating FMCG grocery manufacturing firms. The risk comes because of unpredictable buying patterns of consumers that result in a sudden loss or spike in demand, making it difficult for the firms to generate accurate forecasts. The following quote highlights this risk:
They [
This corresponds with the findings of Bertolini
Say I get a huge demand, so now I want a million bottles next week. He will say, ooh, I can’t do that, I don’t have the capacity to do that, because I have to put in a new mould and a new this and so forth and he can’t react to that. (P5, Male, Supply Chain Executive)
The impact … we actually lost 40% of our sales. We didn’t have packaging, he couldn’t supply. (P11, Male, Integrated Business Planning Lead)
Previous studies found that supply risks had a frequent rate of occurrence and a moderate impact (Diabat
I think the biggest risk is labour unrest, yeah. Especially in this market where getting material in if you have a transporters strike … a consumer is not going to stop doing his or her laundry because F9 employees are on strike. They will then go buy from somebody else. That will also lead to market share erosion. (P9, Male, Plant Manager)
In terms of the labour law, they have to give a certain amount of notice before they go on strike. The amount of notice is clearly insufficient for us to react, to do a building up of sufficient stocks before, because in the stand-up during that notice period the guys are working, but they are working at half speed. (P5, Male, Supply Chain Executive)
The international literature does not emphasise labour unrest as a significant risk. This could be due to geographic differences, as the South African industrial relations environment is quite unstable (Soki & Balchin
The ability to recover from a disruption is associated with the development of responsiveness capabilities, specifically through redundancy and flexibility. The following specific design strategies illustrate these capabilities.
In this section, criteria used in selecting suppliers and the supply base for the firms will be discussed (Tang
When deciding on suppliers and supply bases, South African FMCG grocery manufacturers apply strict selection criteria. These criteria mainly revolve around quality aspects as well as price and service. Furthermore, capacity is a key factor that will determine where grocery manufacturing firms source their raw materials from. The participants mentioned that local suppliers do not have enough capacity to produce key raw materials for such big firms. Therefore, the firms opt to source globally. Moreover, the unique specifications of the products produced by the participating firms require a certain standard of quality and unique skills in the production of raw materials for the products. The participating firms reported that these specifications are best met by global suppliers. The following quotes illustrate these criteria:
In evaluating suppliers we would want to understand their supply chains and associated mitigation strategies they have in place in order to ensure consistency of supply. (P3, Male, General Manager)
Take one of our grooming products for example, they are so difficult to make that first we don’t give it away to a contractor and lose that edge. And second, it’s not easy to find other companies who can make that at the same level [
Ten of the 12 participants mentioned that at least some of the key raw materials for their final products were sourced globally. The participants mentioned various advantages of global sourcing, including that global suppliers are more reliable and more responsive when it comes to a disruption. The following quote provides an example of the benefits of global sourcing:
In Japan, when Fukushima happened 2 years ago, they [
It is important to note, however, that manufacturers of food products, such as frozen foods, confectionary and dairy, do not share the same sentiments as the manufacturers of home care, personal hygiene and baby products. This is because manufacturers of food products make use of commodities which are produced locally.
These findings agree with the literature which indicates that sourcing globally increases the vulnerability of lengthier supply chains (Colicchia
Azadeh
Eleven of the 12 participants indicated that multi-sourcing enabled their firms to maintain continuity of operations when faced by disruptions. A typical example of such disruptions is when a supplier fails to deliver raw materials due to a disruption on their side. The use of multi-sourcing as a form of ensuring continuous supply is in line with the literature as cited by Tang (
I’ve got three suppliers approved to give me that product. So easy; 50:50. 50:50 or 25:25:50. You got active suppliers. And that’s the only way on key raw materials the packaging that you are going to reduce that risk. (P8, Male, International Supply Chain Manager)
As illustrated in the following quote, 11 of the 12 participating firms make use of strategic stock to buffer themselves against a potential disruption:
In times we know there’s gonna be an event like strikes and stuff we will then preposition stock to then just lift the whole supply chain. We can’t keep it at one site so we’ve got a few key 3PL warehousing companies that helps us with flex. But obviously, you speak to your customer’s right? Again, you preload them as well. (P2, Male, Customer Service and Logistics Director)
Storing mutual inventories at certain strategic locations therefore allow firms to withstand holdups and guarantee continuity of operations. These inventories are shared amongst supply chain partners, such a 3PL or the retailer itself.
Flexibility can amount to an organic capability, which also supports sensing disruptions and relates to the event readiness dimension of supply chain resilience (Oke & Gopalakrishnan
Similar to the redundant strategies mentioned above, flexible transportation arrangements are considered as a critical strategy to ensure the continuity of operations when the firm is faced with disruptions. Ten of the 12 participants mentioned this strategy as key. The following statements indicate how most firms achieve this:
So when we look at outsourcing of the contract, we said let’s outsource to one party that’s got this flexibility within their system and access to multiple brokers so that we know if we need to flex up or flex down or there’s issues with transport it doesn’t affect us. (P3, Male, General Manager)
But I mean, we’ve got massive flex in our transportation. We can flex (pause). When I say massive flex I mean if I want to use today 80 or 100 percent more trucks, I can do that. Within 48 hrs obviously uhh [
South African FMCG grocery manufacturers also utilise flexible transportation as a means to enhance the firm’s ability to receive and supply goods to and from the focal firm. As mentioned in the literature review, South African firms also exercise the choice of making use of a 3PL provider that provides agile flexibility.
An additional and interesting aspect emerged from this study. Factory redesign was used to ensure continuity of production within the factory when employees were on strike and involved configurations within the facilities that built capacity and enabled continuity of operations. This strategy is demonstrated by the following quote:
We would have to consider allowing these staff to sleep on site because we can’t now have a situation where your striking workforce is outside the gates and everybody else is inside. So, what we do is we create facilities within the factory where people can sleep. So we’ve had to manage logistics around beds, extra change room facilities, extra washroom facilities, etc. (P3, Male, General Manager)
These arrangements are made within the manufacturing facilities for the employees who are not on strike. This allows the firm a competitive edge in maintaining production activities.
The physical location of a firm’s facilities is seen as a critical design approach which enables the firm to react to disruptions (Christopher
The ability of the firm to continuously supply goods to the customers when faced with a disruption is enhanced by a decentralised model. Over 50% of the participating firms make use of a mixed-distribution model comprised of a few big central facilities close to the manufacturing plants and expanding into various regional facilities. The following quote depicts how this model enhances resilience:
We do not only have one CDC, we have multiple CDCs. We have multiple DCs. So if one of them is impacted, we can still react from the other ones. So if one DC would burn down, for example, which is obviously a risk that can happen, we can still, with the other facilities we have, manage that risk. Same with factories. We have factories that can produce multiple products in multiple locations so if we need to switch from, let us say, our Johannesburg factory to our Durban factory, we can do that. (P4, Male, Supply Chain Development Manager)
This aspect concurs with the literature as mentioned by Christopher
We are strategically very aware of the fact that the industry, especially [the] retail industry, is changing. Retailer A is now centralising their distribution … which means that we used to have to go to Polokwane to the family stores … They go there now. We deliver in Jo’burg in their DC, so if the other retailers start following suit, it would not make sense to have a DC there anymore. Because the industry is moving, the whole retail industry is moving. (P4, Male, Supply Chain Development Manager)
Nine of the 12 participants mentioned that supply chain mapping is used before positioning new facilities in order to pinpoint risk areas. The technique has also been used for existing facilities. The following quote highlights the use of this strategy:
One thing that helps a lot is supply chain mapping. The better you understand your supply chain, the more you understand the risk of it and that’s something that we’ve done over the last 10, 15 years, either when you design new supply chains but also your existing ones to improve them. (P7, Male, Head of Supply Chain)
These findings are in line with the observations by Christopher and Peck (
The final theme summarises the above-mentioned design approaches as it assesses the decisions of the firms to incur the costs of implementing the strategies to ensure resilience of the supply chain. All 12 firms mentioned that they will rather incur the costs of building capacity through the above-mentioned design approaches than save costs in the interim whilst having to pay the price of recovering from a disruption later. The following quote illustrated the firms’ stand on this trade-off:
The potential cost of lost sales, should the risk materialise versus the cost of holding that additional stock, yeah those, that’s the simple calculation … What could you lose if that risk were to materialise, how material would it be to your business and would you be able to recover it? Or if not then you hold it in the strategic stock, and should it not happen well then you know, great for everybody but if it did happen we know we protected our business. (P10, Male, Supply Chain Manager)
The available literature showed some concern in firms’ eagerness to incur the costs of design approaches for resilience (Tang
Link between risks and mitigating supply chain design approaches – a comparison between the literature and findings of this study.
Risk categories | Examples of risks in each category (from the literature) | Design strategies (from the literature) | Examples (from this study) | Design strategies (from this study) |
---|---|---|---|---|
Supply risks – high frequency and moderate impact | Delivery delays or failures |
Multi-sourcing |
Delivery delays or failures (P11); Quality issues leading to product recalls (P5); Local packaging supplier’s unreliability | Multi-sourcing |
Demand risks – moderate frequency and high impact | Volatile demand | Supply chain mapping |
Volatile demand causing the firm to under or over produce and under or over supply. For example, promotions done by retailers leading to unpredictable buying patterns (P7) | Supply chain mapping-understanding the supply chain |
Macro-environmental risks – low frequency and high impact | Power outages |
Mapping supply chain for clear visibility of pinch points | Labour unrest (P9); Electricity risk (P4) | Mapping supply chain for clear visibility of pinch points |
The aim of the study was firstly to explore the types of supply chain risks South African FMCG grocery manufacturers face. Secondly, this study investigated how the design approaches used by firms facilitate supply chain resilience.
Based on the frequency of occurrence and the impact of risks on the supply chain, the South African FMCG grocery manufacturers face three main risks. These include labour unrest risks emanating from the macro-environment, volatile demand leading to inaccurate forecasts and supply risks arising specifically from local packaging suppliers.
In order to facilitate supply chain resilience through supply chain design approaches, the firms indicated that they opted to source globally rather than locally. One reason is that local suppliers struggle to react to disruptions in the supply chain, which poses a threat to the focal firms’ continuity of operations. Multi-sourcing and strategic stock are two of the main redundant design strategies used by South African FMCG grocery manufacturers. These two strategies enable the firms to maintain continuity of operations. Most of the participating firms indicated that they have flexible transportation arrangements, such as contracts with various third party logistics providers. Lastly, in terms of physical design strategies, the firms currently follow a mixed-distribution model which allows them the flexibility of having various facilities in case one of the facilities is affected by a disruption.
Supply chain mapping has been used by most of the participating firms in this study. The technique is not used only before locating new facilities but also when reassessing existing design strategies.
When deciding between implementing costly design strategies to anticipate risks and remaining cost effective by not implementing these design strategies, all 12 firms unanimously agreed that risk readiness is more important than cost savings. These decisions are guided by the underlying common factor that lost sales and market share losses due to unpreparedness of the firm are more costly than the implementation of these design strategies.
Although supply chain design approaches are known in theory and applied in practice, the study provides new insights to confirm the importance of these approaches in enabling resilience and reducing the impact of possible disruptions. Design approaches, such as strategic stock and multi-sourcing, are used by firms but are not recognised for their inherent resilient capabilities. The findings of this study, therefore, structure the elements within design approaches in an organised manner, allowing managers to clearly link the strategies to the main risks. Furthermore, the study was mainly carried out on multi-national firms and, as such, it can provide contributions and recommendations to be followed by smaller grocery manufacturers. Managers can apply this to firstly understand the relevant risks that they are facing within the industry and consequently this study will also guide them as to what the recommended approach should be when they are considering supply chain resilience.
This study was carried out within the boundaries of the South African FMCG grocery manufacturing industry and its findings can, therefore, not be transferable to the greater FMCG grocery industry. Future research should expand on other industry players such as grocery retailers. Furthermore, this study focused only on a portion of the model proposed by Christopher and Peck (
The objective of this article was to identify the supply chain risks that FMCG grocery manufacturers face and to match supply chain design approaches tailored to facilitate supply chain resilience. The study was carried out using a descriptive qualitative research design through 12 face-to-face semi-structured interviews conducted with supply chain practitioners in the South African FMCG grocery manufacturing industry.
The main risks identified in this study are labour unrest risks emanating from the macro-environment, volatile demand leading to inaccurate forecasts and supply risks arising specifically from local packaging suppliers. Labour unrest is the most commonly faced risk within the South African grocery manufacturing industry. This may be the case due to the fact that South African grocery manufacturers are highly dependent on labour, especially within the transportation leg of the supply chain. Most importantly, the industrial relations environment in South Africa is unstable and firms are, therefore, faced with significant risks resulting from labour unrest.
The design approaches implemented by South African FMCG grocery manufacturers correspond to those suggested by Azadeh
Furthermore, the study indicates how the South African FMCG grocery industry is structured based on the concentrated industry composition of five main grocery retailers. This has major implications in terms of the new direction that these main grocery retailers are leading the industry towards centralised distribution models. These, in turn, will affect the design approaches to be implemented.
The authors would like to acknowledge reviewers of the draft manuscript.
The authors declare that they have no financial or personal relationships which may have inappropriately influenced them in writing this article.
This article is based on the MPhil dissertation of A.A. A.A. was therefore the main researcher. W.N. assisted as supervisor with the conceptualisation, literature review and research instrument. T.K. provided methodological and technical guidance.
The link between the codes, sub-themes and main themes identified in this study.
Raw data extracts | Codes | Sub-themes | Main themes |
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So the biggest thing that you have in FMCG and you got exactly what it stands for, its fast moving consumer goods is volatility in demand. Ok so you do not get a forecast from our customers. We … they try and give us a forecast or an idea but we don’t get a forecast that we can plug into our planning system and then we can make to that. Really it’s gonna be a lot of historical data, a lot of trend analysis to read the market, to try and read the demand. And it’s incredibly volatile and you’ve got on the back of that, you’ll have pricing discounts, you know there are promotions, you’d have um activities that will be either a launch of a new product or a revamp of a current product which all causes volatility in your demand. So the biggest area we all have and sometimes this is a generic industry issue is trying to read our demand so we can supply according to that (P8) | Volatile demand risk | Demand risks | Supply chain risks |
I will tell you, we had a bad one, last year, it is the only bad one we had. The supplier came here, and not his fault either and it’s a, you know, what, we had picked up a toxin in the maize, that goes into the pet food. |
Supplier risks | Supply risks | - |
Packaging, is almost…for the product that we are, we have a little bit of safety stocks and a little bit of that and we supply out of that. But now all of a sudden you have to get all of it, say I get a huge demand, so, say, now I want a million bottles next week. He will say, ooh, I can’t do that, I don’t have the capacity to do that, because I have to put in a new mould and a new this and so forth and he can’t react to that. (P5) |
Local packaging supplier risk | - | - |
I think the biggest, the biggest risk is labour unrest, yeah. Especially in this market where getting material in if you have a transporters strike then you’ve got a problem. And then you also have our own union activities that is also a problem to get product out this is also a problem. So you almost have like what you would call a strike season if you like where you don’t know what’s going to happen right. That’s one of the biggest risks that we face. You still have to pay uhh those people that don’t go uhm, they’re not so productive people like me who don’t go in strike and who’ve got no clue to handle the machine. Right. So you actually find that there is huge losses that are incurred during that time. (P9) | Labour unrest risk | Macro-environmental risks | - |
If something happens that we don’t know is going to happen, let’s say, we have, a fire, or something like that, a major disaster, then we are going to have a problem, depending on what plant it is, if it is a mayo plant, we may look to one of our competitors, maybe, to ask to pack some for us, or we must say, no, we don’t do that, we sell what we have got there, or we set up another plant very quickly, besides what we have we set up another. (P5) | Limited backup plans | Operational risks | - |
Um then obviously another (sighs) I know is really a it is a risk but um you know electricity. So it’s a challenge for us you know. Um we’ve managed to mitigate that through coming up with an agreement with the Councils and saying working on a low curtailment programme to say we agree that we won’t that we will not use electricity during this time so that it’s uh more predictable for us. Because for us if it’s a unplanned shut down, it costs us a lot of money because you just lose everything that’s sitting on the line, all that product that’s sitting on the line gets dumped. Because the line stops and you just can’t do. So that’s a risk for us um. (P6) | Electricity risk | - | - |
Can imagine a big corporate like F 2 and the economies of scale they get with buying at one or two or three specific vendors. So those economies of scale outweighs everything. (P2) |
Global sourcing | Sourcing strategies | Design approaches |
And another one is in Japan, when Fukushima happened 2 years ago they had a big problem in supplying us in the right quantity and there we know that we have strategic partnership with another supplier. He opened more capacity up when that happened, although they are competitors but in the end the know they need to, they couldn’t, they could’ve made a fortune out of charging more because there was shortage in supply but they understand that we are kind of together in that with P & G but also with our main competitors like [inaudible] and uni charm (min33). And so they mitigated the risk amongst themselves so even though they are competitors. (P7) | Supplier responsiveness | - | - |
In evaluating suppliers we would want to understand their supply chains and associated mitigation strategies they have in place in order to ensure consistency of supply |
Strict supplier selection | - | - |
I’ve got three suppliers approved to give me that product. That piece of packaging or that raw material. Actual dual sourcing or multi-sourcing means am actually buying from them now. So easy 50:50. 50:50 or 25:25:50. You you got active suppliers. And that’s the only way on key raw materials the packaging that you are going to reduce that risk. Because I can tell you now, the way that we work here, you can’t have a guy lying dormant and then suddenly you say ‘Oh my goodness, the guy am buying from he’s had a fire. I need to turn the guy on’. You gonna be … he’ll take up to 2 weeks to be turned on. (P8) | Multi-sourcing | Redundant strategies | - |
In times we know there’s gonna be an event like strikes and stuff, we we push up safety stock. We will then preposition stock to then just lift the whole supply chain take it to another and another 5 or 7 days. So again you know we can’t keep it at one site so we’ve got a few key uh 3PL warehousing companies that helps us with um flex. So we’ll flex into those and then obviously with the 38 locations, we just take them to maximum stock holding. And then obviously, we can put some containers down in Tembisa. Interesting stuff uh at selected sites where you can actually get more stock into the supply chain. But obviously, you speak to your customers right? Again, you preload them as well. So you fill them backdoor, you fill their sites as well. (P2) | Strategic stock | - | - |
Good question actually. So when we enter the contract with the 3PLs, within the 3PL contract we’ve got various models. So you move from a fixed dedicated fleet that is yours full-time that’s operated by a third party into a model where you only make use of a broker from external. So again it gives you flexibility as well. So if broker A can’t help you, you’ve got broker B, C, D, E, F on the books. So when we look at outsourcing of the contract, we said let’s outsource to one party that’s got this flexibility within their system and access to multiple brokers so that we know need to flex up or flex down or there’s issues with transport as it doesn’t affect us. And that’s that’s why we meet that option. (P2) | Flexible transportation | Flexible strategies | - |
We would have to consider allowing these staff to sleep on site because we can’t now have a situation where your striking workforce is outside the gates and everybody else is inside, you can’t now send them out after a shift because they’re going to get beaten up, they’re going to get followed home, they’re going to get petrol bombed, their houses, all kinds of things. So what we do is we create facilities within the factory where people can sleep. So we’ve had to manage logistics around beds, we’ve had to manage logistics around extra change room facilities, extra washroom facilities, people need to bath uh people need to be fed etc. (P3) | Factory redesign | - | - |
We do not only have one CDC, we have multiple CDCs. We have multiple DCs. |
Decentralised model | Physical design approaches | - |
We are strategically very aware of the fact that the industry, especially retail industry, is changing. With experience with Pick n Pay now centralising their distribution… |
Consolidation of facilities-move towards centralised facilities | - | - |