1. Introduction
Company competitive advantage and strategic goals cannot be achieved by
looking at a firm as a whole. It comes from the organisation peripheral
activities such as marketing, producing, designing, etc (Christopher, 2004).
Porter’s value chain disaggregates the firm into its strategic activities to
learn and understand the factors which affects the cost and potential sources
of differentiation. Value chain activities are classified into primary and
support activities. Primary activities include inbound logistics, outbound
logistics, operations, marketing & sales and service. Support activities
include human resource management, technology development, procurement and firm
structure (Sekhar, 2009).
It is argued that these activities should not be too detailed as it may
add complexities in maintaining a strategic and management perspective on value
creation (Chang, 2005). Primary activities are directly responsible for
creating and bringing value to the customers whereas support activities are
responsible for improving the performance of the primary activities (Stabell
and Fjeldstad, 1998). Inbound logistics, operation and outbound logistics are
considered important functions in creating company’s value and for strategic
improvements. Porter identifies that there are interdependency between these
activities (Kahlen and Patel, 2011). The value chain of a firm’s is embedded in a system
of interlinked value chains. It includes value chain of suppliers of components
and raw materials, distribution channels, buyer’s value chain and chain of
support activities. The aim of this paper is to discuss how these functional
activities need to be aligned in order to help an organisation’s strategic goal
to engage in continuous improvement.
2. Continuous improvement (CI) philosophy and tools
Continuous improvement means a constant commitment to inspect managerial
and technical processes in the search for the best methods and practices (Kovach
and Fredendall, 2013). Teamwork
involves collaboration between the managers and all other employees in the
organisation and among the different business functions and with clients and
processes. Over the past few decades
continuous improvement initiatives such as lean , six sigma , total quality
management(TQM), just in time(JIT) and other quality improvement programs have
gained attractions to organisations who aim to remain competitive in the
business (Bernett and Nentl,2010).
Lean management is about the minimisation of waste in the production
process. It focuses on production redesign and reduction of employees and other
resources to a bare minimum to ensure that high levels of productivity are
achieved (Zokaei
and Simons, 2006; Marley and Ward, 2013). It also focuses on the need to ensure that
inventory is minimised. Overproduction and underproduction are also eliminated
with CI focusing on ways of ensuring that better ways of demand forecasting and
alteration of production are created with time. Also important is the need to
eliminate idle times between production processes. It emphasises on effective
coordination in the production process to ensure that production is smooth and
that each process is executed at its optimum (Walker and Davies, 2011;
Abusa and Gibson, 2013). As can be seen, this management tool focuses on all
organisational functions ensuring that the operation costs at each stage are
minimised. As a tool for continuous improvement, the lean management approach
focuses continuously on ways of minimising production costs and improving the
efficiency of the production process (Walker and Davies, 2011).
Just in Time (JIT) is a
production control tool that focuses on the element of timeliness (Shortell et al, 1995). Like
lean management, it focuses on the minimisation of waste in the production
process. This tool has predominantly been used in reference to supplier
relationships and the inbound logistics element of the organisation’s value
chain (Oprime,
Mendes and Primenta, 2012). The focus has been on ensuring that materials and
products are delivered just in time for the next stage in the production process.
This necessitates orderliness and coordination of organisational functions to
ensure that timelines are accurate and idle time is eliminated.
Total quality management (TQM) is one of
the most popular management tools used in organisations (Suárez-Barraza and
Ramis-Pujol, 2010 Shojaei, Ghochani and Mottaghi, 2013). It is a
management tool that focuses on customer value and the need to ensure that
every function within the organisation is aligned to deliver on it. TQM focuses
on continuous improvement where changing customer preferences are monitored and
production processes realigned to meet them (Singh and Singh, 2013;
Al-Bourini, Al-Abdallah and Abou-Moghli, 2013). It also
emphasises the need for top management to take charge of quality management and
ensure that the highest standards are upheld at all times. The management tool
has provisions for monitoring and subsequent improvements to ensure that there
are no quality lapses.
The balanced score card is a
management control tool that is designed to ensure that effective performance
is realised across the organisation (Briley, Fowler and Teel, 2000). When
using this tool, the organisation creates specific performance indicators for
every function within the organisation. These performance indicators are
aligned in a manner to ensure that success in one function reinforces the
overall success of the organisation by supporting the performance of other
functions (Sekhar,
2009; Arora, 2002). This means that in the event of organisational
change, the vision for change must be broken down into actionable objectives
which are then applied to different departments and performance indicators
generated for each. This is a tool that is highly compatible with a range of
management philosophies and techniques such as Kaizen and TQM with the main
impact being its emphasis on the focus on all organisational functions when
creating and implementing a quality improvement initiative (Cundiff, 2004; Glover,
Liu, Faris and Aken 2013).
Continuous improvement is a necessity in the modern world. The market is
today identified as highly competitive and also highly dynamic (Kovach
and Fredendall, 2013). This market
environment makes it necessary for organisations to be dynamic and focus on
continuous improvement. Good CI capabilities can be a source of competitive
advantage for the organisation; a fact that many organisations around the world
seem to accept. In a 2010 survey by Bernett and Nentl (2010), over 19%
confirmed that their organisations were had been involved in at least one
attempt to pursue continuous improvement. Out of these, 75% stated that the CI
programs were being implemented across the whole organisation with only 14%
stating that the programs were restricted to specific functions and departments
(Bernett and Nentl, 2010).
The continuous improvement looks to identify and implement ongoing
enhancement in a firm’s products, services and processes thus aligning
different functional activities of value chain. With increase global
competition, the current manufacturing environment focuses on supply side and
customer satisfaction which is part of the service functional activity (Gomes
et al. 2006). It is also argues that to achieve competitive and strategic
goals, it is necessary for organisation to infuse quality and improvement
initiatives in all aspects of their operations (Pintelon and Gelders, 1992). This
implies that CI should not only lead to the reduction of costs, but also help
in raising more profits for the organisation. However, Bernett and Nentl (2010)
found that expectations over the outcome of CI tended to vary with only 44%
being optimistic about increases in revenue while only 50% anticipated that CI
in their organisations would help in reducing their inventory. This means that
not all efforts in CI are successful in yielding the desired results. It means
that successful CI must be subjected to a certain criteria, the most common of
which is the need to focus on all elements of the value chain and ensure that
they are remodelled in a manner to achieve synergy in the entire organisation
(Briley, Fowler and Teel, 2000). A discussion of the value chain and its
application in CI is done in the section below.
As noted above, CI is best implemented in reference to the whole
organisation. This implies the need to ensure that different activities are
aligned to each other and any improvement in one designed to reinforce the
effectiveness of the other functions (Lemire,
Demers-Payette and Jefferson-Falardeau, 2013).
For instance, in total productive maintenance, the human resource management
needs to align with the operations of the organisation. Machine operators carry
out routine maintenance for the system operations. They need to be well trained
in order to carry out these functions. Training of machine operators increases
their understanding of the operations, better team work and more attention to
details (Gomes et al. 2006). It is a continuous improvement process which aim
in reducing wastage, minimize downtime and improve end product quality.
Identifying and eliminating waste or activities which don’t add values
for the customer are part of continuous improvement program lean (Martowidjojo
and Alamsjah, 2011). This
continuous improvement is a value added effort to the customers as they pay for
the end products or services. Supply chain and logistics plays important role
in continuous improvement. It is important to align the functional activities
associated with logistics and supply chain in order to achieve continuous
improvement in the organisation (Zokaei and Simons, 2006). The links between these functions is important as
one activity may lead to good or bad outcome to another activity. For example,
reduction of costs in one activity may lead to further reduction of costs in
another activity. However, it is also learned that human resource management
such as training, commitment from managers and support are also require for
lean as different lean practitioner’s toolkit can be introduced. The
relationship developed among the members of the group or network will enable
the production plan to be more effective and inventory holding time (Taylor,
2005). The alignment of these functional activities is
necessary in order to achieve continuous improvement. Interactions with the
customers, aligning operations and distribution networks with customer demand.
The alignments of these functions will also able the organisation to reduce the
production levels quickly when the sales fail thus avoiding overbuild and
reducing stockpiles unnecessary inventory (Zokaei
and Simons, 2006). In production
planning, working with operations group and internal marketing and sales as
well as external marketing improves the accuracy of the sales prediction and
effectiveness in production.
Porter’s value chain explains the organisation of organisational
functions as demonstrated in the figure below. These functions are divided into
primary and support activities. The primary activities are core to the
organisation and are often organised in a sequential manner from the
acquisition of raw materials to the delivery of the finished products to the
organisation (Walker and Davies, 2011; Fearne and
Martinez, 2012). Support services are
those that are applied to serve the whole organisation albeit to different
extents for different departments.
Source: Zokaei and Simons, 2006
Inbound logistics describe
processes that are related to the receipt of raw materials and inputs; how they
are stored, and how they are distributed internally (Shortell et al, 1995). In
reference to CI, supplier relations play an important role in ensuring that the
inputs are well priced, of the desirable quality, and are delivered on time for
production (Oprime,
Mendes and Primenta, 2012). Organisations focus on improving supplier
relationships through the creation of longstanding contracts as well as the use
of integration of systems. In some cases, information on demand projections can
be shared to ensure that the suppliers are apprised on how to alter the volume
and frequency of supplies. This has been the main focus of the Just-in-Time
approach to production where organisations focus on minimising inventory costs
and absorbing supplies just before they are used for actual production (Oprime, Mendes and
Primenta, 2012; Gertner, 2013). This means that the inventory is maintained at the
lowest possible levels. More importantly, the focus of continuous improvement
must focus on increased efficiency in the transfer of supplies from the storage
facilities to the point of production.
Operations involve the processes undertaken to convert the inputs
into the products and services that are to be marketed to the customers (Abrahamsson and Gerdin,
2006). Typically, the focus of CI in operations would
include the reduction of idle time, refining of production design to minimise
wastage, investing in faster approaches to production, automation of production
processes to reduce unit costs, and alignment of product features with changing
customer preferences. This is arguably the core of any CI program even though
there is need to ensure that it is aligned with other elements in the
organisation’s value chain (Suárez-Barraza
and Ramis-Pujol, 2010; Antoniou, Levitt and Schreihans, 2012). The
management philosophy that is most popular when focusing on the production
processes is Kaizen. Kaizen is about continuous improvement where the basic
belief is that everything can be improved (Suárez-Barraza and
Ramis-Pujol, 2010; Suárez-Barraza, Ramis-Pujol and Kerbache, 2011). It is a
general philosophy that is highly compatible with other CI tools such as TQM
which is a customer-focused quality management tool that ensures that
production and organisational functions are continuously aligned to changing
customer preferences.
Outbound logistics refer to
the process of availing products and services to the customers (Savolainen, 1999). It
refers to the distribution network and the need to ensure that customers can
conveniently access the products. At the heart of this value chain element is
the need to conform to changing demographics, lifestyles, approaches to
shopping, and minimisation of the cost of distribution (Singh and Singh, 2013).
Organisations will often have to make a choice between engaging independent
distributors and exploiting fully owned distribution channels. As emphasised on
the discussion on TQM, the point of reference must always remain the customer (Singh and Singh, 2013). Changing
customer preferences such as liking for online shopping has also been
accommodated by many organisations around the world which have either
introduced online stores or ensured that product and company information is
readily available online (Kovach
and Fredendall, 2013). As earlier emphasised, synergy between this
value-chain element and other organisational functions is crucial to success in
implementing continuous improvement.
Marketing and sales refer to
activities that organisations engage in to make the market aware of their
products and services (Sekhar,
2009). This is a complex process which involves marketing
message design which must be done in a manner that projects the intended brand
image while also inspiring the target customers to purchase the products. It
also involves marketing channel design where changing patterns in media
consumption are factored in to ensure that the target audience are reached (Albright and Lam, 2006). In
recent times, advances in communication technology have provided opportunities
for more effective communication. For instance, the internet has become an
important part of the communication landscape. It also presents data mining
opportunities that can be exploited by the organisation where data on customer
inquiries and orders can be analysed to determine preferences for more
effective target marketing (Oprime,
Mendes and Primenta, 2012). For the strategic marketer, focus should be on
constantly monitoring the impact of marketing and branding campaigns and
creating structures for their improvement.
Procurement plays important role in achieving and sustaining
competitive advantage in the recent years. It functions as part of the
integrated logistics process (Singh
and Singh, 2013). Larger and successful organisation now includes
supply side issues in the development of their strategic plans. The total cost
in most organisations can be reduced through closer integration of the buyer’s
and supplier’s logistics processes, not only has the cost of purchased and
supply played significant part of the cost (Chang, 2005). The
marketing effectiveness can be maximized when logistics and service (customer)
components are working optimally. The impact of strong consumer franchise or
customer franchise can be enhanced or reduce by the efficiency of the supplier’s
logistic system. It is also seen that in continuous improvement method like
total quality management (TQM), the technology and human resource management
can build up core competence (Cundiff,
2004). The excellent production and inventory control
system of JIT requires human resources as it requires skill and flexible workers
to handle the system. The success of TQM practices is highly dependent on the
human resource management and understanding customers (services) (Kahlen and Patel, 2011). Understanding of the employees, right tools
to do the job and how they are perceived by the customers will enable to reduce
the money wasted on poor quality and non-value adding activity.
During a case study of Onuba Group Company, it was found that the
organization practiced Benchmarking program and depends on the firm
infrastructures and production technologies for its core activities. Firm structure provides the ability to
process the materials required to produce the raw materials and product whilst
technologies enable the process to carry out in effective and systematic ways.
It was also found that technology improvement and human resource restricting
were responsible for organisation’s losses for period of 5 years. It is learned
from these that alignment of these functional activities should be carefully
carried out to achieve the strategic goals and to achieve continuous
improvement. The group started a programme known as Horizon project with an
objective of reducing cost, management and control. This project for cost
control and reduction has changed the way the working practices of the
employees. For the project to be performed well, the employee and top
management involvement were necessary. The coordination among the employees
from different departments helped the operations of the program to go
successful and effective. Other functional
activities which affect the project were the services, marketing and sales. The
relations with the existing customers and potential sale of the subsidiary by
the organisation should be taken into account in order to take advantage of the
individual and group resistance. In case
of Amazon, technology plays important functional activity in the business. The
alignment of this function to other functional activities decreases waste and
leads to continuous improvement. The company is based on technology and it was
believed that most of the issues could be resolved using the technology and
undermining the involvement of human resources. However, the success rate of
the processes was low and later realized the importance of human involvement.
They have more people working in fulfilment centres and customer service centres.
In order to succeed the processes of the business, the alignment of the
technologies with the human resources is necessary as these people are the one
who actually does most of the jobs starting from stowing, picking, packing,
etc. Later it is learned that the machines are needed to support the high value
humans with the machines.
Human resource management (HRM) is about
managing the employees and ensuring that they are well equipped and capable of
delivering as required (Kovach
and Fredendall, 2013). HRM focuses on improving productivity, motivating
employees, and also job organisation to ensure that responsibilities are
clearly spelt out to facilitate accountability and performance evaluation. It
also focuses on training where skills-gaps are identified and training programs
implemented to ensure that the employees are capable of executing their duties
as desired. Human resources are the most strategic resources for any
organisation as they determine the efficiency with which other resources can be
exploited (Kovach
and Fredendall, 2013). The design of HRM policy must be done with all
organisational functions in mind. Each department and function would ordinarily
have specific skills-set and approach to performance evaluation hence the need
to conform to them. At the backdrop of this is the need to ensure that a common
HRM philosophy is adopted across the organisation. Organisations are expected
to embrace continuous improvement in terms of creating management systems and
HRM policies that encourage continuous improvement at the individual employee
level and for the organisation as a whole (Martowidjojo and
Alamsjah, 2011).
Technology is a broad term that would refer to both production
and communication technologies. Technology can be used to realign production
processes to entrench greater automation with an aim of quality improvement,
speedy production, and reduced costs of production (Lemire, Demers-Payette
and Jefferson-Falardeau, 2013). In terms of communication, technology facilitates
effective communication across the organisation. The organisation is able to
integrate systems in different parts of the organisation. For instance, the
inventory control systems can be used to automatically indicate stock levels
and trigger a re-order mechanism without having to wait for an employee to
notice diminishing stock levels (Kahlen
and Patel, 2011). Technology can also be helpful in HRM where data on
employees and records on their qualifications and performance is organised in a
manner to ensure that allocation of duties and rewards for performance are
accurate and transparent. Organisations focus on continuous improvement in
relation to technology by ensuring that they are in tabs with latest
technological developments in the market.
Continuous improvement is a philosophy which encompasses more than the
actual process improvements in the organisation’s value chain. According to
Shortell (1995), quality improvement implementation is significantly impacted
by the presence of a participative, flexible and risk-tolerant organisational
culture. This is accompanied by a commitment to the development of the human
resources. In terms of the value chain, these values fall under firm
infrastructure which describes the systems and values that are espoused by the
organisation. According to Jabnoun (1991), trust, cooperation and openness are
important ingredients for driving continuous improvement. These values
collectively lead to the creation of a culture that embraces constant
revaluation of organisational functions and the search for means through which
they can be improved. Other values and systems that drive CI are explained as
below.
The organisation is a collection of several people with a common vision.
This common vision is often documented and accompanied by values that the
organisation considers to be important. The company vision and mission provides
a sense of direction for the organisation (Zokaei
and Simons, 2006). It ensures
that continuous improvement efforts are directional and that subsequent efforts
made in quality improvement build on previous attempts. This adds meaning for the
need for the organisation to be a learning organisation where any new lessons
learnt are exploited to build on improvements that have been made on the
company systems in the past. Importantly, the company vision and mission
influences the alignment of all organisational activities and functions. This
means that when CI conforms to it, there’s the high likelihood that it will be
compatible with the current systems and help in making the organisation more
competitive (Walker and Davies, 2011). The importance of this alignment with the company
vision is to ensure that there is a holistic view in terms of evaluating how
the proposed improvements impact different functions and how alignment can be
done to create synergy.
The commitment and involvement of the top management is crucial for
effective CI. From its definition, effective CI is implemented when there is
synergy across the entire organisation (Jabnoun,
2001). This implies the need for top managers to be
involved as they are accustomed to evaluating proposals for improvement from a
holistic perspective where their implementation is expected to affect other
functions. Their role should, however, be complemented with the contribution of
the technical managers who’d be expected to have a deeper understanding of the
operations of the different departments and be able provide insights necessary
for gauging the impact of any improvement proposals made (Oprime,
Mendes and Primenta, 2012). The
commitment of top managers is tied to their acknowledgement of the contribution
of CI towards the competitiveness of the organisation. This appreciation is
what is likely to drive them to not only accept the need for CI, but also
establish systems that spearhead them.
The contribution of top management is crucial in terms of providing the
knowhow and resources needed to implement change (Abrahamsson
and Gerdin, 2006). Their role in
training subordinates and coaching them to entrench values compatible with CI
is crucial to the success of the process. The top managers also play a critical
role in influencing the nature of the organisational culture and values of the
organisation. For most organisations, the organisation culture reflects on the
values and management approaches of the top managers. By embracing an attitude
of flexibility and readiness to change, the managers would be entrenching a
culture of innovation and organisational learning that is crucial to continuous
improvement (Abrahamsson and Gerdin, 2006).
Customer value is the main point of emphasis for organisations. CI is
done to either reduce organisational costs and enable fair pricing to enhance
customer value, or tailored towards quality improvement to conform to changing
customer preferences (Suárez-Barraza and
Ramis-Pujol, 2010). The customer
is the reason for the existence of business. This principal is clear in the
recommendations of the TQM model which continues to be the main source of
reference for quality management in organisations. The organisation must
accurately perceive the customer expectations before incorporating it into the
design of products and processes. The change in customer preference is not
restricted to the actual product quality: it can extend to the preference for
shopping approach, convenience, or even a change in their media consumption
approaches (Oprime, Mendes and Primenta, 2012). These changes are highly relevant for purposes of
keeping the organisation competitive in the market.
Any CI implementation process entails a change in the normal operations
within the organisation. This means that employees would need to be accustomed
to doing things differently from time to time. CI mirrors the organisation
change management process whose main barriers are inertia among employees and a
relapse into the old ways after the change has been implemented (Albright
and Lam, 2006). To prevent such
inefficiencies, there is need for clear communication to all employees within
the organisation. The communication should be inclusive and clear to ensure
that any rumours are demystified and that all employees have a common
understanding of what the change is about and how implementation is to be done.
More importantly, it is important for the collective vision to be built by
making employees understand the need for change, and where possible, encourage
them to champion it (Briley, Fowler and
Teel, 2000). In the end, CI must be
understood to be an inclusive process whose success is dependent on the ability
of the management to secure the full cooperation of the employees involved.
At the centre of continuous improvement is the need for the organisation
to understand what their weaknesses are, the change that ought to be
introduced, and the manner of implementation. Performance monitoring is crucial
to the process (Albright and Lam, 2006). Evaluation should be continuous and entrenched into
every aspect of the organisation. Management accounting is one of the important
functions that concentrate on identifying financial indicators of performance.
Performance trends, productivity statistics, returns on investment, unit
production costs, and other indicators can be used to provide an indicator for
when improvement is needed in the organisation (Savolainen,
1999). The culture of evaluation should also extend to
human resource management where the performance of employees and mastery of the
required skills.
The identification of the need for improvement can either be internal or
external. The external sources can be shifting customer preferences while the
internal sources can be management decisions made in line with the company
objectives set at a specific point in time (Lemire,
Demers-Payette and Jefferson-Falardeau, 2013).
Benchmarking can also help in identifying the need for change where the
organisation’s performance statistics can be compared to the industry average
or to that of the industry leaders.
Continuous improvement is a capability that can be exploited by the
organisation to yield a competitive advantage. It ensures that the organisation
can conform to changes in the external environment effectively. From an
operations perspective, the organisational functions are interlinked and
organised into a comprehensive value chain in which success in one function
reinforces the success of other functions. This means that operation systems
design should factor in how functions impact each other whenever designing and
implementing any quality improvement initiative. It also entails the need to
embrace management philosophies and techniques that can support continuous
improvement. An example is TQM which emphasises on both customer focus and
continuous improvement. The balanced score card, on the other hand, emphasises
on the need to ensure that any improvement initiative is broken down into
implementable objectives and performance indicators that can be applied to each
function. Its design is such that the outcome must reinforce other functions
and improve overall organisational performance. In addition to the actual
activities, the organisational culture and relevant values should be entrenched
to encourage the sustenance a culture of learning, innovation, and
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