Risk Assessment of an Internal Supply Chain - a case study of Thule Trailers AB Jönköping - PDF

J ÖNKÖPING I NTERNATIONAL B USINESS S CHOOL JÖNKÖPING UNIVERSITY Risk Assessment of an Internal Supply Chain - a case study of Thule Trailers AB Jönköping Paper within Bachelor Thesis in Business Administration

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J ÖNKÖPING I NTERNATIONAL B USINESS S CHOOL JÖNKÖPING UNIVERSITY Risk Assessment of an Internal Supply Chain - a case study of Thule Trailers AB Jönköping Paper within Bachelor Thesis in Business Administration Author: Alexandra Fors Madeleine Josefsson Sofia Lönn Lindh Tutor: Jens Hultman Jönköping January 2007 Acknowledgements We would like to thank Thule Trailers AB in Jönköping for their cooperation, and for the opportunity for us to get an insight into the company s operations. We would especially like to thank Jan Björsell, local manager, Cecilia Liimatainen, logistics planner, Mattias Fredriksson, assistant production manager, and Tomasz Kurowski, operations manager in Poland. In addition we would like to thank Magdalena Markowska, PhD-student at Jönköping International Business School for helping us with Polish translations, as well as our supervisor Jens Hultman for his support and guidance throughout the process of writing this thesis. Jönköping, January 2007 Alexandra Fors Madeleine Josefsson Sofia Lönn Lindh ii Bachelor Thesis within Business Administration Title: Authors: Risk Assessment of an Internal Supply chain A case study of Thule Trailers AB Jönköping Alexandra Fors Madeleine Josefsson Sofia Lönn Lindh Tutor: Jens Hultman Date: Subject terms: Supply chain risk, internal supply chains, risk management, supply chain mapping Abstract The concept of supply chain management has become an important issue for companies today in order to keep or gain competitive advantage. It is all about managing your supply chain to reach the highest possible efficiency and increase profits through cooperation with your supply chain partners. A supply chain is however vulnerable to several threats, or risks, that decreases the overall efficiency and influences the business performance. The purpose of this thesis is to identify the internal risks that can be found in a basic internal supply chain in order to make an assessment of their manageability and impact using a specific case. To do this a case study of Thule Trailers AB in Jönköping was conducted. Thule Trailers AB chose to offshore their main production of components to Poland in 2003, so the company s internal supply chain was expanded outside of Sweden. This research looks closer at the interactions between Thule Trailers AB in Jönköping and their internal supplier plant in Poland. The research was conducted using a qualitative method with several interviews with representatives in both Jönköping and Poland, during which a number of internal risks were identified in Thule Trailers AB in Jönköpings internal supply chain. The conclusions made are that the internal risks identified, i.e. communication risks, quality risks etc, might not have as great an influence on the company as would external risks, they can however in comparison be managed. The findings suggest that the issues with e.g. quality and delivery basically come down to insufficient communication inside the internal supply chain. Another conclusion that could be drawn is that since the internal risks in the internal supply chain all are ripple effects, its source is almost always external, which implies that their avoidance is difficult. At least they cannot be eliminated completely by the company itself, it needs to be done in cooperation with the company s external supply chain partners. There is potential to solve most of the internal problems that can be managed internally if both parties are prepared to put some real effort into reducing the risk sources. The risks are manageable and need to be managed to reduce the impact it has for the customer and end customer in turn. The authors of this thesis believe that for a company to be successful, the end customer has to be prioritized in almost every situation, and this goes for all of the members in the supply chain, especially the internal ones. iii Table of Contents 1 INTRODUCTION THULE GROUP Thule Trailers AB PROBLEM DISCUSSION PURPOSE DELIMITATIONS CLARIFICATION METHOD QUALITATIVE VS. QUANTITATIVE RESEARCH METHODS Case study Inductive vs. Deductive Validity and Reliability Interview method The interviews conducted DATA COLLECTION DATA ANALYSIS IDENTIFYING AND MANAGING RISKS IN SUPPLY CHAINS SUPPLY CHAIN MANAGEMENT Supply chains SUPPLY CHAIN MAPPING Internal supply chains SUPPLY CHAIN RISKS Levels of risk Internal and External risks Internal risks Outline of risks MANAGING SUPPLY CHAIN RISKS EMPIRICAL FINDINGS AT THULE TRAILERS IN JÖNKÖPING THULE TRAILERS SUPPLY CHAIN Mapping of the internal supply chain RISKS IN THULE TRAILERS JÖNKÖPING Quality Business system Information flows Capacity Flexibility Delivery security from suppliers Transportation from supplier plant Forecasts Experience MANAGING RISKS AT THULE TRAILERS JÖNKÖPING ASSESSMENT OF INTERNAL RISK IMPACT ON THE INTERNAL SUPPLY CHAIN INTERNAL SUPPLY CHAIN MAPPING INTERNAL RISKS IN THE INTERNAL SUPPLY CHAIN Level Level Level Level MANAGING RISKS IN THE INTERNAL SUPPLY CHAIN Risk management presently Risk management theories applied to Thule Trailers Jönköping Managerial implications iv 6 CONCLUSION DISCUSSION RECOMMENDATIONS FOR FURTHER RESEARCH CRITIQUE OF STUDY REFERENCES APPENDIX FIGURE 1 - THULE GROUP... 2 FIGURE 2 - INTEGRATION OF THE SUPPLY CHAIN ACTIVITIES WITHIN A BUSINESS (HILL, 2000) FIGURE 3 - INTERNAL SUPPLY CHAIN RELATIONSHIP (HAUSER ET AL., 1996) FIGURE 4 - LEVELS OF RISK (PECK, 2005) FIGURE 5 - FOUR BASIC APPROACHES TO MITIGATE RISK (TANG, 2006) FIGURE 6 - THULE TRAILERS INTERNAL SUPPLY CHAIN WITH SUPPLIER AS FOCAL POINT FIGURE 7 - INTERNAL SUPPLY CHAIN FROM JÖNKÖPINGS PERSPECTIVE FIGURE 8 - IMMEDIATE SUPPLY CHAIN TABLE 1 - DISTINGUISHING STRATEGIC SUPPLY CHAIN MAPPING AND PROCESS MAPPING (GARDNER & COOPER, 2003) TABLE 2 - DRIVERS OF RISK (CHOPRA & SODHI, 2004) TABLE 3 - OUTLINE OF RISKS TABLE 4 - MITIGATION STRATEGIES (CHOPRA & SODHI, 2004) TABLE 5 - SUMMARY OF HOW THULE TRAILERS JÖNKÖPING MANAGES RISK v Introduction 1 Introduction The reader will be introduced to the concept of supply chain risk and be brought to understand the vitality of supply chain risk management. The reader will also be made familiar with factors that influence supply chain risk, and find out why the authors of this thesis find this an interesting subject. Also a short introduction to the researched company and the purpose of the thesis will be given. Supply chain management has in recent years become an important issue for many companies. Having an efficient supply chain gives all members in the supply chain an opportunity to gain competitive advantage and increase profits. There are though many threats, or risks that can influence a supply chain negatively (Giunipero & Eltantawy, 2003). Risk has always been a part of a company s business environment and common traditional strategies to deal with risks are multiple sourcing and buffering of inventories. Buffering inventory is however very costly, mainly because of inventory holding costs (Ballou, 2004). Supply chain risk management deals with identifying all sorts of risks that can lead to interruptions in the supply chain (Giunipero & Eltantawy, 2003). A US research company derived in 2003 to an estimate that approximately one in five companies would eventually encounter some kind of supply chain disruption, and out of these 20 percent, 60 percent would most likely go out of business (Christopher, 2005). This shows the great importance of knowing your supply chain and the uncertainties and potential risks that can trigger a negative chain reaction throughout the entire supply chain (Deloitte Enterprise Risk Services, 2004). The risks associated with supply chains have increased in the last decade for several reasons. The markets have become more volatile, there is greater pressure on firms since product life-cycles are becoming shorter, which in turn makes it difficult to predict demand. Other reasons for the increased vulnerability in supply chains are that companies today, rather than focusing on effectiveness, focus more on efficiency. Decreasing inventories and concepts like Just-In-Time makes a company more efficient, but also more vulnerable. Another quite obvious reason is the extended globalization. As companies expand abroad, transfer their production to low cost countries, and applies offshore sourcing, their supply chain gets larger and larger. Outsourcing is another popular concept that does not come without risk. The more a company focuses on its core competencies and outsources other areas, the more complex the company gets (Christopher, 2005). Complexity and risk often go hand in hand. The more intricate the supply chain gets, the more vulnerable it is since it often loses some of the control. When it comes to procurement, some companies choose to source from a single supplier and others from multiple suppliers. Those that choose to source from a single supplier expose themselves to a greater risk since they have no alternative should something happen to the supplier (Christopher, 2005). Especially important are the internal risks within the supply chain, since if these are not handled correctly they might break the company (Fishkin, 2006). Even more important is the internal supply chain, since its performance will influence the external supply chain in turn (Hill, 2000). 1 Introduction 1.1 Thule group Thule Group is a global company with production and sales at over 30 sites around the world, with an estimation of employees worldwide. Thule Group is owned by the British venture capital company Candover, who acquired the organization in 2004 (Johansson, 2006). The company has a large product portfolio and develops, manufactures and markets rooftop boxes, roof rails, bike carriers, snow chains, trailers and accessories for motor homes and caravans (Thule Group, 2006). In order for them to provide such a broad portfolio, the company is divided into a number of different divisions (see also Figure 1): The first division is Europe/Asia, which has its main production plant in Hillerstorp, Sweden. This division mainly focuses on constructing roof racks, roof boxes and bike racks. The second division is Thule Trailers, which has two factories in Sweden, one in Poland, one in Denmark, three in the USA, one in Italy and one in South Africa. The third division is Automation that constructs car rails. The rails are delivered directly to the automotive industry. The fourth division is Snowchains. They have one factory in Austria and one in Italy. The fifth division is USA and is similar to the Europe/Asia division. It is separate due to its geographical location. The last division is Towbars, which is the latest acquisition. Figure 1 - Thule group Today Thule Group has a turnover of approximately 7 billion SEK. The main business idea for the company is to grow both on its own, but also through acquisitions. During the last couple of years quite a few acquisitions have occurred, the latest being the acquisition 2 Introduction of another trailer factory, the snowchain and the towbar division. Each division is responsible for its own results (J. Björsell, personal communication, ) Thule Trailers AB Thule Trailers AB in turn is divided into different production sites as seen previously in figure 1. These are situated in Jönköping, Bromölla, Denmark, Poland, Italy, South Africa and also three plants in the USA. The have two branches as well, one in Norway and one that belongs to Brenderup, Denmark, but is situated in Oslo (C. Liimaitinen, personal communication, ). The Trailers division works with both sales and rental (J. Björsell, personal communication, ). Thule Group s annual report for 2005 shows that the Trailer division has doubled its sales from 2003 to 2005, and also tripled its profits in the same period of time. Reasons stated for this rise is a focus put on management, who in turn put emphasis on product development, which was facilitated by moving the production to Poland (Thule Sweden, 2005). Thule Trailers AB produces trailers within four different segments; boat trailers, consumer trailers, commercial trailers, and horse trailers. Most of the trailers the company has are sold under different brands that have been acquired, like Fogelsta and Tranesläpet (C. Liimatainen, personal communication, ; Thule, 2006). Other brands acquired are Gisebo Proffsvagnen, Brenderup and Easyline (Johansson, 2006). Thule Trailers AB have the largest market share in Scandinavia and is among the three largest producers in Europe and stand for 22% of the total Thule Group sales. The unit in the Trailer Division focused at is the interaction between the unit in Jönköping and the unit in Poland. The main activity at the production plant here is to assemble trailers from parts that they procure internally from Poland. These parts were earlier produced in Jönköping, but now, when part of the production has been offshored to Poland, Jönköping buys larger parts and then assemble them (C. Liimatainen, personal communication, ; Thule, 2006). The production plant in Jönköping has about 110 employees and during the peak season they also employ about 20 people for a short period (Johansson, 2006). 1.2 Problem discussion From the introduction about supply chain risks, it should become clear that it is very important to be able to identify and manage risks in supply chains. Hauser, Simester, and Wernefelt (1996) believe that in order for a supply chain to function smoothly, the internal supply chain must be the first priority since it will affect the external supply chain in turn. Thule Trailers AB in Jönköping is of special interest since they have offshored the largest part of their production to Poland, and therefore have an internal supply chain that extends over borders. The company has agreed to let the authors of this thesis look into their internal supply chain to see how the internal risks are managed. After the offshoring of the production to Poland, the Polish plant is acting as an internal supplier to all units within the Trailer Division. A supply chain is generally a relationship with at least three actors, however, there is also something called a dyad relationship according to Brindley and Ritchie (cited in Brindley, 2004), which is the relationship between two actors in a supply chain. They refer to this as the basic supply chain. The dyad relationship between the plants in Jönköping and in Poland will therefore be of special interest to our research since they act as internal supplier and internal customer. Thule Trailers AB is a part of a very large corpo- 3 Introduction ration of interconnected parts (C. Liimatainen, personal communication, ), but it becomes even more interesting, when the focus is set narrowly. The focus will mainly be on the internal risks that may lead to disruptions in the internal supply chain. There are many things to regard when trying to handle risks in a supply chain, among others, quality, information flow and delays (Chopra & Sodhi, 2004). 1.3 Purpose The purpose of this thesis is to identify the internal risks that can be found in a basic internal supply chain in order to make an assessment of their manageability and impact using a specific case. 1.4 Delimitations The company selected as a source of information for our research is Thule Trailers AB in Jönköping and especially the most important link in the internal supply chain, namely the link between Jönköping and their internal supplier in Poland. The limited time available has not made it possible for us to look deeper into the interaction of all the actors in Thule Trailers AB internal supply chain. The authors of the thesis are however confident that most findings can be generalized to all units in Thule Trailers AB. 1.5 Clarification From here on Thule Trailers AB in Jönköping will be referred to as Jönköping or Thule Trailers Jönköping in order to keep the unit apart from the rest of the division, and the production plant in Poland will be referred to as Poland. 4 Method 2 Method This chapter briefly describes the chosen research method and explains the methods used during the creation of this thesis. The authors will also explain how the conclusions where drawn. 2.1 Qualitative vs. Quantitative research methods There are two major research approaches that are generally used the qualitative and the quantitative research methodologies that can be seen as using different aspects of looking at the same research (McCracken, 1988). The most obvious difference between the two methods is the usage of numbers and statistics in the quantitative method of research, whereas the qualitative method is used to categorize data found through observations. Furthermore, the quantitative method is more structured and the researcher can control much more due to all of the statistical tools available. Some of the theory and the problem statements are pre-structured which makes the analysis of quantitative data easier to perform (Marshall & Rossman, 1999). Since no questionnaires have been used to collect data for this thesis, there are no numbers or statistics to analyze. It has therefore not been an option to apply the quantitative approach, thus the authors of this thesis have conducted a qualitative research. Most research conducted in the area of supply chain management in the past have on the other hand been quantitative. Golocic, Davis, and McCarthy (cited in Kotzab, Seuring, Müller, & Reiner, 2005) suggest though that qualitative studies should be applied more in this field of research, since the complexity in the businesses environments have increased. Its dynamics have become more difficult to research and understand using only quantitative approaches, thus supporting the choice of conducting a qualitative approach in this case. Merriam (1998) describes the concept of qualitative research as a so called umbrella concept, where different kinds of questions help the researcher to gain an understanding of a social phenomenon. The qualitative research method often includes some fieldwork in order to make as accurate observations as possible. The authors of this thesis have made visits to the company s facilities in Ljungarum where representatives were interviewed, and the production assembly lines were shown. Also, the person conducting the research is alone responsible for gathering and interpreting data in comparison to quantitative research methods where computers might be involved (Merriam, 1998). Since the researcher is the primary interpreter in the qualitative research method, it is of great importance to be critical of the findings. I.e. the qualitative approach is more interpretative than the quantitative approach where explanations of correlating causes is the primary focus. A significant source of error is the human factor, which makes it extra important for the researcher to be objective (Merriam, 1998). To avoid this to the greatest extent possible, all empirical data gathered, i.e. information gathered through interviews, have been recorded using a dictaphone, and later transcribed into a Microsoft Word document. Telephone interviews have also been recorded and transcribed in the same way. 5 2.1.1 Case study Method In order to get a deeper insight into an internal supply chain, this research was conducted as a case study of a single company. The reason to study activities present inside a single company can be that case studies allow researches to ask questions like Why? and How? Golicic et. al (cited in Kotzab et. al., 2005). This was considered an appropriate approach in the process of answering the purpose of this thesis. A case study usually contains several sources of empirical information such as interviews, questionnaires, and observations, and might end up being either qualitative or quantitative, or even a mixture of both. The focus is not on the outcome but rather on the process (Br
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