Clusters and Supply Chain Management

Clusters and Supply Chain Management

Tom Odgers LOG 502, Module 2 Case Study

Apple Organization and Supply Chain Integration

July 9, 2011The origins of the African palm oil, known as Elaeis guineensis jack, can
be traced back to the Gulf of Guinea in West Africa, where it was grown mainly along rivers. Today, out of all oleaginous plants, palm is the biggest producer of oil in the world. On average, a hectare of palm produces six to ten times more oil than other oleaginous plants. It is an important and versatile raw material for both food and non-food industries, which contributes to the economic development of the producing countries and to the diets of millions of people around the world. In fact, palm oil is part of the life of a huge number of people. It is present at home, at work, at restaurants and even cars rely on the countless uses of palm oil. In Asia, palm oil is also referred to as gold oil for its perfect balance of saturated and unsaturated fat acids which do not affect adversely cholesterol levels. Products made from palm oil are found all over the world, including edible oils, food concentrate for animals, cosmetics, paints, soaps, detergents, printing inks and candles and is part of many other ingredients used today. More recently palm oil has played an important role in the development of alternative fuel sources used to run machines. Consumers choose palm oil for its health benefits and industries favor palm oil for its physical properties, including its excellent stability, which allows it to be mixed with other raw materials. The outstanding versatility of palm oil is what makes it a popular crop among farmers. Because of that versatility, a number of players are present in the production process of palm oil, being part of the supply chain management and building a long-term relationship from the source of production to the end user, with a lot of benefits such as: (1) Increasing productivity because of the good access for the employees and suppliers, better access to specialized information, institution and public goods and increase supply chain network support; (2) fast innovation cycle because of enhanced flexibility, lower risk of business failures, innovation proximity and (3)

Clusters and Supply Chain Management Stimulus of the appearance of new business through enhance of local market opportunities, knowledge of business opportunity and quicker identification of perceived gaps in products and services (Porter, 1990). The palm oil industry major players can be grouped into a cluster covering upstream producers, downstream producers, exporters and importers, customers, Government agencies, other players such NGOs and other important entities for the industry. Governments where the palm oil is produced consider palm an ideal crop to create development projects, generate employment and promote alternative fuels, because of the flexibility of its functions. Supply chain management is improved through the use of concentrated clusters because of the relationships developed between the supplier and customer. Utilizing a concentrated cluster adds benefits to a company since the clusters are linked to several companies and other entities within the same industry. Being involved with clusters allows the company and customers to be more familiar with their particular needs. When the relationship between the business and the customer is long standing, it adds a personal touch to the support of the customer. Many benefits can be derived from having clusters such as providing a consistent product. In the logistical sense it is companies coming together forming a bond that will benefit all involved. It is another way of forging a relationship of trust and reliance upon the entities involved. The creation of a supply cluster brings together the production, transporter, supplier together allowing them to voice concerns that will assist all in support of their business venture. Clusters enhance the supply chain by gaining increased acceptance as a tool used by firms to both improve customer service and reduce total costs. Geographic distance adds to

supply chain complexity and increases logistical costs in the supply chain. An argument can also be made for the benefits associated with the increased interdependence and mutual commitment

Apple Organization and Supply Chain Integration that accompanies a cluster and a tightly woven supply chain. Being part of a cluster allows companies to operate more productively by offering better access to employees and suppliers, access to specialized information, complementarities between businesses, access to institutions and public goods, and better motivation and measurement (Dewitt 2006). Clusters are also viewed as providing the capacity and flexibility to react rapidly to a customer request. A company within a cluster can often source what it needs to implement innovations more quickly, given that local suppliers get closely involved in the innovation process. Given the closeness of companies within a cluster, both in terms of geographic proximity and relationships, companies are seen as being able to experiment at a lower cost and delay large commitments until they are more assured that a particular innovation will be fruitful Individuals working within a cluster can more easily perceive gaps in products or services around which they can build a business (Dewitt 2006). In China supply clusters seem to be the way to go. They help businesses grow and prosper. The focus is on keeping cost down and maintaining faithful partners in similar

businesses. China businesses are linked together for a common purpose. China is known for low cost labor so utilizing supply clusters works very well. Michael Porter describes a cluster as a "geographically proximate group of interconnected companies and associated institutions in a particular field, including end-product manufacturers, component suppliers, and supporting firms." As a whole, an industrial cluster is essentially a collection of many interrelated supply chains (or supply networks). These supply chains contain many levels of independent suppliers and manufacturers with different suppliers possibly serving the same manufacturer, and different manufactures ordering from the same supplier (Lifang 2006). The large number of supply clusters formed in China in recent years has

Clusters and Supply Chain Management

contributed significantly to the nation's manufacturing competitiveness. Foreign visitors to China are often surprised to find hundreds (or even thousands) of factories producing the same type of merchandise in a single township along the east coast. This production structure, which is built on the supply cluster concept, has become the means by which almost everything is made in China and there is little indication that this will change anytime soon (Lifang 2006). Cluster members benefit from joint marketing campaigns such as company referrals and trade fairs. The grouping of similar producers also makes buying from a cluster more attractive for purchasers as they are in contact with and exposed to many vendors in a single trip. Geographically dispersed companies are less likely to recognize and capture such benefits. Although clusters can foster cooperation in efforts like marketing, they also fuel competition in other dimensions. This competition is driven by the desire to "look good" in the community and to win customers' orders. So, whenever there is a leader in process reengineering or product design innovation, for example, other enterprises in the cluster will try emulate the leader by developing similar technologies or adopting similar personnel hiring strategies. This continuous striving for improvement has the positive effect of attracting equipment suppliers, collaborative research labs, and other service companies to the cluster. Efficiency and effectiveness in the supply clusters should only increase as Chinese manufacturers begin to acquire new production equipment and improve their practices and processes (Lifang 2006).

Apple Organization and Supply Chain Integration

Bibliography 1. DeWitt, Tom, Larry C. Giunipero, Horace L. Melton. (2006). Clusters and supply chain management: the Amish experience. International Journal of Physical Distribution & Logistics Management, 36(4), 289-308. Retrieved June 25, 2011, from http://www.emeraldinsight.com/journals.htm?articleid=1554309&show=pdf

2. Lifang Wu, Xiaohang Yue, and Thaddeus Sim. (2006). Supply Chain Clusters: A Key to China's Cost Advantage. Supply Chain Management Review, Retrieved June 25, 2011 from http://www.scmr.com/articles/CA6329789.html

3. Porter, ME. (1998), Cluster and the new economic of competition, Harvard Business Review, November-December, pp. 77-90