Importance of Mission

 Communicating internally
 Values and feeling are integral element of consumers? buying decision.
 Suggest that employees are motivated by more than money.

Mission statements are formal statements of an organization, they should be brief for ease of
remembrance, flexible to accommodate change and distinctive to make the firm stand out.
Planning begins with a mission or a purpose statement. It is difficult for managers to master
mission statement because of its philosophical and qualitative nature. Many organizations find
their departments and sometimes even their groups pulling in different directions and often with
disastrous results simply because the organization has not defined the boundaries of the business
and the way they wish to do business.

ENVIRONMENTAL ANALYSIS

Objective:

 The student should be able to understand the environmental influences.

 Should be able to conduct and evaluate external aspects of a marketing audit.

Introduction

The environment in which an organization exists could be broadly divided into two parts; the
external and the internal environment. This chapter deals with the appraisal of the external
environment.

The environment literally means the surrounding, external object, influences or circumstances
under which someone exists. The environment of any organization is the aggregate of all
conditions, events and influences that surround and affect it.

A opportunity is an area of buyer need in which a company can perform. Opportunities are
classified according to their attractiveness and their success probabilities. The company success
probability depends a whether its business strength not only match key success requirements for
operating in the target market but also exceed those of the competitors.
Environmental threat is a challenge posed by an unfavorable trend or development that would lead
in absence of defensive marketing action, to deterioration in sales or profit.

The Business Environment

Throughout midst of its history, corporations have been viewed solely as economic institutions
only economic responsibilities. These responsibilities included producing goods and services to
meet consumer needs, providing employment for much of the nation?s work force, paying
dividends to shareholders and making provision for future growth. Where these economic
responsibilities were fulfilled, the business was considered successful and to have met its
obligation to the society.

However, the last 50 years has seen a dramatic change in the environment in which the business
function. New roles have been defined for business to perform in the society. The society has
devoted increasing amount of attention to issues such as pollution control, safety and health, equal
opportunity and production of quality and safe products. These concerns have resulted in the
proliferation of new laws and regulations that restrict business activities that affect the society in
an adverse manner. The effect of this change is dramatic change in the <rules of game= by which
a business is expected to operate.

Thus economic functions of business are no longer dominant and must be seen in relation to the
social and political roles that business is being asked to assume. The business institution is being
reshaped to meet these responsibilities and must factor social and political considerations into its
planning and operational process. This is the new reality businesses must learn to live. This
changing role of business in society has, of course, made an impact on the management task within
corporations. Managers have had to incorporate social and political concerns into their decision-
making process. These are becoming part of routine business operations in many corporations.
Many managers have changed the way in which they view their responsibilities to society.
Learning to understand the external environment and to consider its impact in making management
decision has become the most necessary skill for every successful manager. No business decisions
today can be based solely on traditional business rationale and be successful.
The lesson that the students of strategic management need to learn is that, in a dynamic
environment, it is suicidal for organizations to remain static. They have to forego keeping an
internal orientation and attempt to change dynamically as the environment changes.

Characteristics of Environment

1. Environment is complex - environment consists of many factors and it’s difficult to

comprehend at once the factors that constitute the environment.
2. Environment is dynamic – the environment is constantly changing in nature. Due to many
and varied influences operating; there is dynamism in the environment.
3. Environment is multi-faceted – different observers may view A particular change in the
environment differently. Another may view the same development as an opportunity by
one company and as a threat.
4. Environment has a far – reaching impact – the growth and profitability of an organization
depends on the environment in which it exists. Any environmental change has an impact
on the organization in several different ways.

External/Internal Environmental analysis

The external environment includes all factors outside the organization, which provide
opportunities or pose threat to the organization.

The internal environment refers to all factors within an organization, which impart strengths or
cause weaknesses existing in the internal environment.

1. An opportunity is a favorable condition in the organizations environment, which enables it

to consolidate and strengthen its position. An example of an opportunity is a growing
demand for the products or services that a company provides.
2. A threat is an unfavorable condition in the organizations environment, which creates a risk
for, or causes damage to, the organization. Example of a threat is the emergence of new
form of competition.
3. Strength is an inherent capacity, which an organization can use to gain a strategic
advantage. An example of strength is a superior Brand.
4. A weakness is an inherent limitation or a constraint, which creates strategic, disadvantages.
An example of a weakness is over-dependence on a single product.
THE PURPOSE OF ENVIRONMENTAL ANALYSIS

It is to provide managers with a clear and detailed understanding of their current and future
environments. With this knowledge, managers should be able to match environment with the
organization capabilities discussed earlier. This is a complicated exercise because of the
complexity of most environments and the uncertainty degree on how the environment will
influence the organization. There are two questions a planner should consider;

a) To what extent should the environment affect an organizations corporate strategy?

b) In what ways might organization's strength and capabilities be best related to the
environment?

Environmental Factors/Sectors

The classification of the general environment into sectors helps an organization to cope with its
complexity, to comprehend the different influences operating in the environment, and to relate the
environmental changes to its strategic management process. We will use a eight category
classification of the environment. This includes;

 Market environment
 Political and Legal Environment
 The Economic Environment
 Cultural environment
 Business ethics environment
 Social environment
 Technology environment
 Ecology

Market environment

This consist of factors related to the group and other organizations that compete with and have an
impact on an organization markets and business. This include;

1. Customers factors like their need, preference, perceptions, attitudes, values, buying
behavior, and satisfaction of customers.
 2. Product factors like demand, image, features, utility, lifecycle, price promotion place,
availability of substitutes etc.
3. Marketing intermediary factors, such as level and quality of customer service, middlemen,
distribution channels, logistics, costs and delivery systems and financial intermediaries.
4. Competitor related factors such as types of competitors relative strategic position of major
competitors

The marketing environment depends on the type of the industrial structure. In monopolies and
oligopolies, the concern for the market environment is lesser than the case of the pure competition.
In recent times the government policy has moved towards allowing some degree of competition
within the public sector like banks, radio and TV stations etc. This has made the market
environment more important in strategic management.

Political and Legal Environment

Marketing decisions and activities are restrained and controlled by multitude of laws and
regulations established by the political institutions. Laws have been enacted to preserve a
competitive atmosphere or to protect the consumers. Extent of the impact of these laws on
marketing mix variables will depend on how marketers and the court interpret such provisions.
Other sources of regulations include the local authorities etc.

Some industries are subjected to heavy regulation e.g. electricity, water, rail transport – This gives
company’s operating in this environment monopoly and prices are restricted. This is justified by
the large sum of money that needs to be invested in the industries.

Changes in law can be anticipated from governing party?s manifestos to guide the firm?s political
priorities. Also the government publishes papers to consult on plan on issues like green issues,
employment, wages etc.

The government is also responsible for creating a stable framework for which business can be done
e.g. in terms of physical infrastructure, social infrastructure and market infrastructure. Some
political changes can make planning of company activities difficult and there are political risks
that can damage the firm e.g. wars, political chaos (Mageuzi and Mungiki etc).
The concern is the stability of the political system, the government commitment to the rule of
game, expectation of change in government and expected changes in the business practices etc.
Government policy in particular industry is important.

The Economic Environment

Economic forces affect the firm’s strategic decisions. Strategic require purchasing power as well
as people. The available purchasing power in the market depends on current income, prices,
savings, debts and credit availability.

The industrial structure of the economy will determine the level and distribution of income and
this will in turn impact on the business of organization. Some of the important factors include;

1. The economic stage at which the country is in at a given point.

2. The economic structure adopted, such as capitalist, socialist, or mixed economy

3. The economic policies, such as industrial, monetary and fiscal policies.

4. Economic policies such as five-year plan, annual budget and so on.

5. Economic indices like national income, distribution of income, rate and growth of GNP, per
capita income, disposable income, rate of savings, balance of income etc.

6. Infrastructure factors such as financial institution, banks, modes of transport, communication

facilities, and so on

Economic factors like GDP, inflation, interest rates (cost of borrowing), tax levels, government
spending and business cycle need to be considered. During periods of boom, premium prices can
be charged, during recession, demand for goods and services are low and prices depressed. Refer
to UK economy. Impact of EC and E-currency price transparency. In some countries goods are
more expensive than others. (Cars – UK). Interest rates will be uniform.

Culture Environment

The society in which people grow shapes their beliefs, values and norms. People absorb almost
unconsciously a worldview that defines their relationship to themselves, to others, to nature and to
the universe.
People living in a particular society hold many core beliefs and values that tend to persist e.g.
American believe in work, getting married, in giving charity in being honest etc. These core beliefs
and values are passed on from parents to children and are reinforced by major institutions like
schools, churches, businesses and government. People’s secondary beliefs are more open to change
i.e. belief in institution of marriage is a core belief but believing that people ought to get married
early is a secondary belief.

Family planning strategist could make headways by arguing that people should not get married at
all i.e. strategist can change the secondary values but have little chance of changing the core values.

Think about drinking and accidents. Those advocating – no drinking have little chance because
people have cultural freedom to drink. The idea of using a taxi driver when drunk. Can be a good
strategy, also they can lobby to rise legal drinking age. Cultural discipline and habits can make
consumers boycott some products e.g. Muslim and pork. Knowledge of culture is of value to
business because strategist can adapt their producers accordingly and gain sizeable markets.
Human resource management can tackle cultural difference in recruitment e.g. interpretation of
body language.

Sub-cultures

Each society contains subcultures – various groups with shared values emerging from their special
life experience or circumstance. Sub cultural groups exhibit different wants and consumption -
marketers can choose sub-cultures as their target markets.

There are benefits that come from targeting a subculture i.e. marketers have always loved teens
because they are society’s trend setters in fashion, music, entertainment, ideas and attitudes.

Also they know if they attract a youth, there are good chances of keeping him/her in future.
Sub culture can come due to:

(a) Age

(b) Class

(c) Ethnic background

(d) Religion
(e) Geography/region

(f) Sex

(g) Work

Shift of Secondary Cultural Values through times.

Core values are fairly persistent but cultural swings takes place. Advent of break dance, hip-hop,
Lingala etc. and other cultural phenomena had a major impact on young people’s lifestyle,
clothing, sexual norms and life goals. Today young people are influenced by new heroes and fads
etc. Marketers need to spot cultural shift that might bring marketing opportunities and threats.
There is need to forecast cultural trends.

Business Ethics Environment

Organizations management and employees conduct will be measured against ethical standards by
the customers, suppliers and publics. There are ethical problems in:

1. Production practices e.g. child labour, dangerous work conditions, safe products etc.

2. Gifts – way of doing business

3. Social responsibility – accounting for pollution and human right issues.

4. Competitive behavior - competing aggressively or unethically.

Social Environment

This involves the study of demographic factors i.e. study of population and population trends. The
factor important includes – growth of population, age of the population, geographical distribution,
ethnicity, household and family structure, employment, social structure and wealth. Implications
– changes in the patterns of ad location of ad, recruitment policies wealth and tax. The concern is
the worldwide population growth, the age mix ethnic risks, educational groups, household patterns
and shift from mass markets to micro markets.

Technology Environment

Technology affects and changes our lifestyles. Technology in areas like communication, transport,
computer, energy, fabrics, metal and packaging has influenced the types of products produced. It
has also influenced advertising, personal selling, market research, pricing, packaging, transport
and use of credit. Technology has led to invention of new products. Technology to apparatus or
equipment – techniques and organizations. Technology contributes to overall economic growth.
The total output can increase through increase in productivity, reduced cost and new types of
products.

Effects of Technology

Types of products and services made and sold, the way products are made, services provided,
market identified, firms managed and communication with external clients via websites, e-mail
etc. E.g. Internet phones charged at the local rates – undermines price per distance.

Social Effects:

(a) Home working – will be possible and will become more important.

(b) Intellective skills – relate to interpretation of data and information process. More valued than
physical skills.

(c) Services – Manufacturing productivity increases – more work human resources released for
service jobs.

(d) Database marketing

(e) Using the internet

(f) Implication of internet

ECOLOGY

In many cities, air and water pollution has reached dangerous levels. There is great concern about
certain chemicals causing air, soil and water pollution. In W. Europe <green= parties have pressed
for public action to reduce industrial pollution. New legislation passed as a result of the activities
of environmentalism has hit certain industries very hard. Some companies have to invest billions
of shillings in pollution control equipment and more environmental friendly fuels.

Ecology will affect business in that;

1. They will ad for less pollution from the industry

2. Greater government regulation

3. Polluter pays – business will be charged external cost of their activities.

4. Need for ecology audit.

5. Opportunities to develop products and technologies that are ecologically friendly.

Importance of the Physical Environment

1. It is the source of inputs – oil and mining companies.

2. It is present logistical problem or opportunities to the organization e.g. proximity to roads or

rail.

3. This environment is under heavy control of other organizations like the local and central
governments.

4. Disasters – the physical environment pose a major threat to organizations.

SWOT Analysis

Businesses undertake SWOT analysis to understand their external and internal environment.
SWOT is the acronym for strengths, weaknesses, opportunities and threats. Through such an
analysis the strength and weaknesses existing within an environment can be matched with the
opportunities and threats operating in the environment so that an effective strategy can be
formulated. An effective organizational strategy is the one that capitalizes on the opportunities
through the use of strength and neutralizes the threats by minimizing the impact of weaknesses.

This is to identify competences needed to succeed in the identified opportunities. Hence there is
need to evaluate internal strength and weakness periodically.

The checklist performing strength/weakness include a review of marketing, financial,

manufacturing and organization competences – each factor can be rated as a major strength or
minor strength.
The business does not have to correct all its weakness nor gloat about its strength. The question is
whether the business should limit itself to those opportunities where it has strength or should
consider other opportunities where it might have to acquire or develop certain strength.

INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

Chapter objectives:

By the end of this chapter, the learners should;

i) Definition of supply chain

ii) The learner should understand the concept of supply chain management in different
environments

iii) The learner should understand the upstream and downstream suppliers and their effects on the
supply chain

Introduction

This is an integrative philosophy to manage the flow of a distribution channel from the supplier to
the ultimate user. A supply chain management can be likened to a well-balanced and practiced
relay team in which the entire team is co-coordinated to win the race. From this definition, supply
chain is therefore a cross-functional process for strategy definition and implementation with total
cost focus and a strong continuous improvement drive aimed at serving the organization’s
customer.

The Kenya Institute of Supply Management (KISM) defines supply chain management as
managing a series of activities and processes ranging from the source of raw material, performing
a series of value adding activities, procurement, production or conversion of the finished product
or service purchased by ultimate consumer to satisfaction.

Supply chain is that network of organizations that are involved through upstream and downstream
linkages in the different processes and activities that produce value in the form of products and
services in the hands of the ultimate customers.

It involves the following functions:

  Customer relationship management
 Customer service management
 Demand management
 Order fulfillment
 Manufacturing flow management
 Procurement
 Information facility structure

Most supply chains are actually networks. Although the word chain is commonly used, the term
>supply network or >supply web is technically more accurate. A network has been described as a
set of supply chain, which together describes the flow of goods and services from original source
to their uses. The term network is intended to imply a more strategic concept with the idea that
networks compete.

There are nine different types of activities that companies perform in coordinating and managing
supply networks:

 Partnering
 Risk and benefit sharing
 Resource integration
 Information processing
 Knowledge capture
 Social coordination
 Decision making
 Conflict resolution
 Motivation

Successful supply chain management requires a change from managing individual functions to
integrating activities into key supply chain processes. Operating an integrated supply chain
requires continuous information flow, which in turn helps create the best product flows. The
customer remains the primary focus of the process.

Materials Management
The grouping of management functions supporting the complete cycle of material flow, from the
purchase and internal control of production material to the planning and control of work-
in process, warehousing, shipping and distribution of finished product.

Logistics Management

This refers to the process of strategically managing the acquisition, movement and storage of
material, parts and finished inventory through an organization and its marketing channels to fulfill
orders most cost-effectively.

Logistics does add value and can play a vital role in the organization’s profitability. However, only
by linking all logistics activities directly to the organizations strategic plan can it be useful in
supporting the organization’s strategy for achieving competitive advantage.

Procurement is thus a supporting activity in logistics which should be properly handled to enable
Firm’s improve cash flow, open new territories, introduce new products etc.

The term Logistics management was used to mean combining materials i.e. the inbound side and
the outbound side with the aim of improving customer service and reduce the associated costs. The
process was developed further to encompass not only the key functions within an organization’s
own boundaries but also those functions outside that contribute to the provision of a product to a
final customer. This is known as supply chain management.

Concept of Supply-Chain Management

The development of supply-chain management concept is attributable to two major paradigm

shifts:

 Change in focus on internal processes to value adding benefits.

 Change in focus from tactical to strategic.

Supply chain management represents a relatively new way of approaching business and different
views exists regarding the process involved, the key process typically would include customer
relationship management, customer service management, demand management, order fulfillment,
manufacturing flow management, procurement and product development and commercialization.
Supply chains are essentially a series of linked suppliers and customers.
Every customer is in turn a supplier to the next downstream organization until a finished product
reaches the ultimate end user. It is important to note that the supply chain includes: a firm’s internal
function, upstream suppliers and downstream customers.

Internal functions: Different processes used in transforming the inputs provided by the supplier
network. This involves order- processing, managers translating customer’s requirements into
actual orders, which are inputs in the system. Proper co-ordination and scheduling of these internal
flows is challenging. Examples of internal functions include: Purchasing, warehousing,
engineering, production and operation departments.

Upstream external suppliers:

In order to manage the flow of materials between all the upstream organization in the supply chain,
firms employ an array of managers who ensure that right materials arrive at the right location at
the right time. Purchasing managers are responsible for ensuring that:

 Right suppliers are selected.

 The suppliers are meeting performance expectation
 Appropriate contractual mechanisms are employed.
 Good relationships maintained with these suppliers

They may also be responsible for driving improvement in the supply base and acting as a liaison
between suppliers and other internal members.

External downstream supply chain: Encompasses all the downstream distribution channels,
processes and functions that the product passes through on its way to the end customer. This
includes distribution of finished goods, pipeline inventory, warehouses and sales operations.
Within the downstream portion of the supply chain, logistics managers are responsible for the
actual movement of materials between locations. One major part of logistics is transportation
management, involving the selection and management of packaging, storing and handling of
materials at receiving docks, warehouses and retail outlets. After sales services and maintenance
services have also been introduced in the downstream supply chain to ensure customer satisfaction.

Thus, supply chain management is a system approach that is highly interactive and complex, and
requires simultaneous consideration of many tradeoffs. Therefore, the management should monitor
and evaluate the performance of the supply chain regularly and frequently. Its implementation also
requires executive support and commitment. Managing a supply chain is a complicated task
considering the degree of complexity one faces if he’s actually going to manage all suppliers back
to the point of origin and all products and services out to the point of consumption.

Executives would want to manage their supply chains to the point of consumption because
whoever has the relationship with the end user has the power in supply chain. Management must
therefore frequently monitor and evaluate the performance of the supply chain.

Successful supply chain management requires a change from managing individual functions to
integrating activities into key supply chain processes. Operating an integrated supply chain
requires continuous information flow, which in turn helps create the best product flows. The
customer remains the primary focus of the process.

Logistics and Supply Chain Management (SCM)

There are four distinct differences claimed for supply chain management over the more classic
view of Logistics although some of these elements have also been recognized as key to successful
planning of logistics operations. These four are:

 The supply chain is viewed, as a single entity rather than a series of fragmented elements
such as procurement, manufacturing, distribution etc. This is also how logistics is viewed
in most forward – looking companies. The real change is that both the supplier and the end
user are included in the planning process thus going outside the boundaries of a single
organization in an attempt to plan for the supply chain as a whole
 Supply chain management is very much a strategic planning process with a particular
emphasis on strategic decision-making rather than on operational systems.
 Supply chain management provides for a very different approach to dealing with inventory
throughout the pipeline process. Traditionally, inventory has been used as safety – leading
to large and expensive stocks of production. SCM aims to alter this perspective so that
inventory is used as a last resort to balance the integrated flow of products through the
pipeline.
 Central to the success of effective SCM is the use of integrated information system that is
a part of the whole supply chain rather than merely acting in isolation for each of the
 separate components. These enable visibility of products demand and stock levels through
the full length of the pipeline. This has only become a possibility with the recent advances
in information system technology.

The objectives of supply chain management

The objective of every supply chain is to maximize the overall value generated. The value a supply
chain generates is the difference between what the final product is worth to the customer and the
effort the supply chain expends in filling the customer’s request

The next objective is the appropriate management of all flows of information, product, or funds
within the supply chain. Thus resulting maximized total supply chain profitability.

Decision phases in a supply chain

1. Supply chain strategy or design: During this phase, a company decides how to structure
the supply chain over the next several years. It decides what the chain’s configuration will
be, how resources will be allocated, and what processes each stage will perform
2. Supply chain planning: The time frame considered is a quarter to a year. Planning includes
decisions regarding which markets will be supplied from which locations, the
subcontracting of manufacturing, the inventory policies to be followed, and the timing and
size of marketing promotions.
3. Supply chain operation: The time horizon here is weekly or daily, and during this phase
companies make decision regarding individual customer orders. At the operational level,
supply chain configuration is considered fixed and planning policies are already fixed.

The goal of supply chain operations is to handle incoming customer orders in the best possible
manner.

Supply chain management relationship with other departments

a) Supply Management and Engineering

 Engineering department prepares material requirement schedule that the quantities

required and when required to the supply department to buy accordingly
 Engineering department should prepare reports on quality performance on material and
equipment’s.
b) Supply management and manufacturing.

 Supply management should provide in advance on any delays or failures in material

delivery so that production can make alternative arrangements
 Supply management provides raw materials, operating tools and equipment to the
manufacturing department.
 Both departments should agree on the economic order quantities of materials to buy that
will meet production needs.
 Both departments should introduce a variety of techniques that will improve performance
such as Electronic Data Interchange (EDI), Material Requirement Planning (MRP) systems
etc.

c) Supply management and quality.

 Quality control sets standards or specifications to be observed during inspection.

d) Supply management and marketing.

 Supply management ensures that through efficient buying costs are reduced. Marketing
then prices the items competitively.
 Supply department obtains materials on time and enables marketing to meet promised
delivery date and schedules.
 Supply department should give advice on price changes and material availability so that
marketing can respond appropriately.
 Marketing provides sales forecasts so that supply department can plan the buying of
materials.

e) Supply management and Finance and Accounts.

 Accounts provide for effective purchase of materials. Supply management should consult
with the accounts department before placing orders with suppliers.
 Supply management should prepare material requirements and budget allocations by
searching for commodity prices.
 The supply department on receiving materials certifies the supply invoice before presenting
to accounts for payments.
  Through annual stocktaking, supply management provides information on the value of
stock that finance can use in making financial statements.
 Supply management should give accounts information on materials damage, obsolete and
redundant materials so that accounts can adjust value of assets.

f) Supply management and Logistics.

 Supply management should provide information on load size packaging for proper
handling during transport
 Supply management should prepare material delivery and collecting schedules
 The two departments should agree on the vehicle availability, routing, loading and
unloading arrangements
 Supply management should give information on consignment picking from different
suppliers and discharge points to customers
 Supply management should provide fuel, maintenance and servicing, spare parts for the
transport department to work efficiently.

g) Supply management and lawyers.

 Legal professionals are frequently actively involved in contract negotiations and contract
formation.
 In other cases, their role is one of review and approval of contracts developed by supply
management professionals. Value-adding attorneys who are involved in supply
management issues normally must embrace a collaborative approach to dealing with the
firm’s suppliers.

h) Supply Management and Research and Development (R&D).

 Supply management agrees with research and development on material specifications,

availability of substitutes and price of substitutes.

i) Supply Management and Personnel and Administration.

 Personnel department is responsible for recruitment, employment, promotions, transfers

and dismissal of the staff.
  The two departments determine staff qualifications requirements, training needs, job
description and evaluation to enable supply staff develops themselves.
 Personnel provide advice to Supply staff in matters of motivation, conflicts resolutions etc.

j) Supply Management and Information Technology.

 Electronic communication for production materials requires coordination and cooperation

between supply management and IT
 The two departments should develop a database which provides timely and accurate input
to supply management for strategic planning and tactical activities.

Review Questions

i. Purchasing staff are still relevant in the supply chain. Highlight the activities that
purchasing can undertake as supply chain member.
ii. Explain how the role of procurement manager has changed with the concept of supply
chain management.
iii. Logistics is the key to the success of the supply chain of a business firm’. Explain
iv. Supply chain management can be used for gaining competitive advantage to deliver
superior customer service. Discuss Value added service is an innovative approach adopted
for gaining a competitive edge in the supply chain’. Discuss.

References

i. Nair N. K. (2002), Purchasing & Materials Management, Tata McGraw Hill, New Delhi
ii. Katoch S. (2000), Materials Management, PVT publishers, New Delhi
iii. Starr M. K. (2009), Production & Operations Management, McGraw Hill, New York