SUPPLY CHAINS: To “Bullwhip’’ the Professional Worker… or not!

 By Abba Isa Abubakar

The Professional Worker & Supply Chain Challenges

Shell UK has been a leader in developing the United Kingdom’s oil and gas reserves for the last 30 years. The company is fully involved in all the aspects of oil business in the United Kingdom, from upstream to downstream with even a service centre in Glasgow that provides a wide range of financial, accounting and customer related services globally. Shell United Kingdom employs a total of around 8,050 people; about 6,500 people out of the total are based at Aberdeen for its offshore and onshore exploration and production. 

Examining downstream operations, oil products are a vital part of Shell’s business in the United kingdom, refining crude oil, selling products through retail network and supplying and distributing fuels through a network of storage facilities, pipelines and road tankers. The Stanlow Manufacturing Complex is a massive crude converter and Shell’s only refinery in the UK is responsible for the company’s downstream involvement. The refinery's crude oil is pumped from one of Shell’s production sites through a pipeline to storage tanks. Refined products from the refinery are distributed primarily by road and ship inland waterways to a large network of give or take 900 petrol stations.

Shell United Kingdom is indeed engaged in a typical oil and gas supply chain, with core activities based on a labor force of knowledge intensive workers with complementary skills, working in teams of mainly knowledge intensive units. This article is focused on the problems associated with management practices in this supply chain. Eric Anderson highlights that “forces that govern oil and gas supply chain are internal (business related) and external (political/economic)” he identified four categories of factors that differentiate an oil and gas supply chain and influences its strategy. These are, capital intensiveness of field development, size of oil companies mainly through mergers, fluctuation of oil prices and risk associated to political pressures. 

These forces, and other factors related to globalization (world trade, information technology, global production and sourcing of materials) have increasingly made the business environment turbulent and increasingly complex, exerting a lot of pressure on contemporary management practices and corporate structures. What makes up the 21^st century oil and gas supply chain is the predominantly small and large groups of professional workers linked up in an integrated system of organizations/companies. These workers are a bit different compared to the conventional labor intensive workers of 20^th century because every worker is an authority of himself and can individually take a decision that can affect the whole company.  

The ultimate question is how can Shell equip managers to overcome the issues within effective supply chain management? In my opinion, effective management the supply chain largely involves understanding how to effectively manage the professional worker. Therefore, my article highlights the importance of understanding how to manage the professional worker and argues that this understanding could be a useful tool towards effective management of supply in Shell United Kingdom and beyond.

In an attempt to achieve this objective I looked into the key theories and models that seek to identify ways to control worker behavior in terms of achieving optimal performance. I have also highlighted the limitations of early assumptions of managing worker performance under the umbrella of economic models eg. The rational model of motivation and a human relations approach as inspired by the works of Maslow, Herzerberg, Aldefer, Vroom to mention a few; and job design models looking at both intrinsic and extrinsic rewards that could motivate the knowledge intensive workers.

Shell Oil Company and Supply Chain Management Issues

Supply chain management is concerned with configuration, coordination and continuous perfection of a successively controlled set of operations, with vision of minimizing cost and achieving maximum customer service. Some of the likely supply chain challenges faced on a day to day basis are highlighted below.

Lack of information flow: This is mainly as a result of competitive behavior and lack of transparency between the groups within a supply chain, “The supply chain lies no longer with an individual company; we have global networks cutting across countries and organizations. The only way to achieve this is to get players working to a common agenda – the collaboration agenda. We have been taught to compete: nobody has taught us to work together. The need and awareness is there but still nobody has taught how to do it”[1].

Lead time effect: This deals with order processing delays between when an order is placed from a retail filling station and the steps involved before it is received, gets to the refinery and back or when the refinery orders for crude from the production platform or storage facility. It also manifests through to the sea tanker through the geographical challenges of getting across to the refinery. Sometimes products pass through (VMI) Vendor managed Inventory operated by a different company not under Shell group, which contribute to delay in getting the products especially with large volumes involved, these could also cause operational delays.

Panic Ordering and inventory management: Rising back orders cause a potential jeopardy to inventory management and eventually result in panic ordering. In an attempt to cover for the inventory deficit and address cumulative back orders; an unwise but common practice is that orders are placed randomly without truly considering what is genuinely needed. The ultimate penalty of increased cost implications of this mix-up is needless.

Demand complexity and forecasting: Small variations in demand at the retail end tend to dramatically amplify as they travel upstream across supply chains with the effect that order amounts are very unbalanced and can be exergerated in one week and almost zero in following next week. This amplification of demand fluctuations from downstream to upstream in a supply-chain is called the bullwhip effect. Variability also comes from changes and updates of the demand forecasts.  After all we aware that the “Bullwhip effect is the tendency of small variations in demand to become larger as their implications are transmitted backward through the supply-chain.[2]” (Christopher M. 2007, page 33); this is based on the theory of Systems Dynamics of Jay Wright Forrester, first coined by Procter & Gamble in their study of erratic demand in baby diapers supply chain.

MANAGING the Professional worker for Supply Chain Success

Considering the fact that knowledge intensive professionals are responsible for executing the general operations that constitute the supply chain, it is important for management to understand how to benefit from effective performance of these workers.  Understanding their responses to various management practices/models is indeed the path towards achieving this objective.

The early economic models attempted to control worker behavior and performance through financial rewards and monetary means, by assuming that every worker has a price tag at which they will basically do what management require of them.  A typical example is the rational model of motivation that identified reward and punishment as the tools of improving performance. But today, with the increased complexity of the supply chain and sophisticated technology that surrounds its operations and increasingly knowledge intensive workers, some management practices have been rendered completely obsolete and unproductive. Lowdel (1997) claims that “models for the management of manufacturing companies are of limited, if any, relevance”. Other commentators argue that the more you talk about knowledge intensive worker the less significant control and reward becomes. The basic assumptions that guide the early theorists are concepts such as such as coercion, monetary reward and prominence upon portion work- which are inadequate motivational considerations for the knowledge worker. It is without a doubt agreed that “in professional partnerships, strategic direction is weak and strategic partnership is one of negotiation, consensus building and iteration.”[3]

Identifying the inconsistent nature of knowledge intensive workers makes the human relations approach more relevant, “stresses the human criteria of commitment, participation and openness[4]”.  This approach was further classified into content and process theories. While the content theories work by identifying human needs that work may satisfy, the process theories explain how people decide which of several actions will best satisfy their needs.  Under the content theories we have the likes of Maslow in 1943 with his theory of hierarchy of needs which identifies the need to fulfill workers physiological needs, safety needs, love and belongings needs, esteem needs, aesthetic needs and finally self actualization. There is also Aldefer in 1959 who summarized the work of Maslow into just three needs namely existence, relatedness and growth needs. Arnold et. al (2005) criticized both theories as being difficult to measure and not precise to the point about when needs become important.

Weak correlation between worker satisfaction and improved productivity introduced a starting point for process theories, wherein it is discovered that people make decisions about their own behavior.  Process approaches like those of J. Stacy in his equity theory state that non-uniformity of inputs and rewards could discourage performance. Also Locke’s (1968) goal setting theory in view of how participation in setting goals, difficulty of goals, specificity and knowledge of feedback can result to performance.  Vroom (1964) in his expectancy theory recommended that the thinking process individuals use to achieve results is based on their calculation of the amount of effort required to accomplish desired success.  Porter and Lawler (1968) added to the good work of Vroom and suggested that feedback is incorporated into future calculations; likewise Adams (1965) added that value of the success is also important to this calculation. In my opinion, a more suitable management approach to the professional worker is the work design approach, which connects various management approaches and emerges with a work place practice.

Way forward

If we critically reflect on the supply chain management issues highlighted, we will find out that the success of any strategy that might be adapted to address these issues will start from wining the performance of this professionals working in groups within the supply chain. Therefore, winning and controlling worker behavior in terms of achieving worker co-operation and effective performance to achieve best possible standards should be the first priority of Shell UK towards achieving effective supply chain management.

“Managers should be less prescriptive and directive and create conditions that integrate individual and organizational goals.[5]” There is a strong disconnection between high salary and flexibility for worker regarding their performance, but a combination of both intrinsic and extrinsic rewards is encouraged. Input controls like recruitment and organizational culture are stronger and more sufficient in motivating the knowledge intensive workers and soft rules, procedures and generally output controls could cause lots of friction.

The limited influence on partners in professional groups where each individual is autonomous indeed calls for talent in negotiation and great persuasion power. Since it is concluded that Bullwhip effect is inevitable management should consider a careful control of the effect as an important goal for effective supply chain management.

 ABBA’S STRATEGIES

Adopt demand driven strategies to dampen the effect of demand amplification by responding to true market information and shipping /piping products to real time changes in demand rather than forecasts.

Supply chain organization should be flexible and unfixed persistently and opened to redefinition of roles and responsibilities to focus on the right objectives at the right time.

Minimize intermediate stages by establish enhanced integration of the supply chain by realigning existing groups, merging departments to climate a boundary and creating social integration through establishing common agenda.

Management should also focus on nurturing long-term client oriented relationship with trade partners to promote information flow and stability across the chain. In essence management should focus on less input controls and more output controls such as, production of corporate image and organizational identity, organizational culture and recruitment to mention a few.

Leadership, knowledge management and innovation are also areas that could further be considered as tools of achieving additional efficiency in supply chain management.

These aspects will bring in the level of change to the company that will ensure that the supply chain has reached its full potential in no time.

NUTSHELL:

Abba believes strongly that effective management of the knowledge intensive professional worker is the starting point to get your Supply Chain systems running and performing. Indeed, today's supply chain management is getting more and more sophisticated and managers are attempting to and in many cases- succeeding (albeit unsustainably) in a ''whip that bull'' approach to get the performance out. Abba explores various models which suggest that the models underpinning the management of the knowledge intensive workers is changing and should be embraced. This application of Shell UK to this study provides a realistic feel to this contemporary challenge for today's supply chains. In other words, hide the bullwhip in order to tame the bullwhip effect. For more information on this article and to view Abba's professional profile, click here. -->