1. 6 TH AFRICAN INTERNATIONAL BUSINESS AND MANAGEMENT 2015 CONFERENCE “CONFERENCE THEME: ENTREPRENEURSHIP, RESOURCE MANAGEMENT AND SUSTAINABLE DEVELOPMENT IN AFRICA” SUB – THEME: GLOBALIZATION, REGIONAL INTERGRATION AND SUSTAINABLE DEVELOPMENT. SUPPLY CHAIN TECHNIQUES AND PERFORMANCE OF MANUFACTURING FIRMS IN KENYA Authors: 1 STEPHEN NYAMWANGE, 2 HARLEY MUTISYA, 3 VICTORIA MULWA 1 Lecturer, Department of Management Science, University of Nairobi, Nairobi, Kenya 2 Lead Consultant, PH Logistics and Consultancy Limited, Nairobi, Kenya 3 Graduate Assistant, Department of Management Science, University of Nairobi, Nairobi, Kenya E-mail: onserion@gmail.comonserion@gmail.com : hmutisya@yahoo.comhmutisya@yahoo.com : victoriamulwa0@gmail.comvictoriamulwa0@gmail.com

2. ABSTRACT Supply chain techniques in the management of organizational performance have received a lot of attention due to the use as competitive advantage in the wake of ever changing consumer preferences and tastes. The study sought to determine the supply chain techniques used by manufacturing firms, to evaluate the effects of the use of the techniques on supply chain performance and establish possible challenges faced by the firms in implementation of the techniques. Data was collected using questionnaires and analyzed using frequencies and mean tools, where the response rate was 90%.

3. The findings indicated existence and relationship among various SC techniques adoption by manufacturing firms and a positive impact on organizational performance. Organizations that adopted use of technology on inventory management, order processing and communications had a higher rate of customer satisfaction. Those that adopted lean and continuous improvement systems were more efficient and effective. However, although the SC techniques have contributed significantly to the firm’s performance, more needs to be done to invest in IT training and infrastructure to improve documentation accuracy and reduce on costs.

4. INTRODUCTION Background As firms strive to remain competitive in the market place, there are internal operational functions that must be improved continually. Customer preferences, government regulations, consumer protection bodies and competitors alike are exerting a lot of pressure on firms to deliver quality products and services. Some firms set goals in their strategic plans for improvements because they are innovative, while others are forced into improvement path as a survival tactic The benefits attained from the improvement include cost reduction, operations efficiencies, coordination of activities and short lead times (Leenders et al, 2006)

5. Farrington et al (2012): supply chains link the upstream and downstream in different processes and activities, value is created in the form transformation and delivery of products and services. Some of the characteristics of supply chain are; they are networks, the linkages are upstream and downstream, they are processes and linkages. In the current competitive global market, supply chain requires a lot of improvement and best practices to ensure effective and efficient operations in the organization.

6. Supply Chain Improvement These improvements can be viewed as the attempts that supply chain uses in order to deal with the complexity of their processes with the purpose of coordinating the activities for efficiency and effectiveness in the enterprise and also customer satisfaction (Slack et al, 2010). It means refining and reinvesting the supply chain so as to boost profit, eliminating waste and better customer satisfaction. Increasingly important in supply chain practice are attempts to improve supply chain performance.

7. Manufacturing Firms in Kenya These are organizations where operations involve transformation of inputs such as raw materials into outputs that are finally delivered to the consumer. Manufacturing economies are associated with long production and the interface of manufacturing lines set up. The long runs however results in higher inventory levels of certain finished products and limited supplies of others. The ultimate decision repulses manager to weigh the advantages and disadvantages of long and short term production cycles. The trend today is towards pull systems manufacturing where the product is pulled in response to demand as opposed to being pushed to the market before demand is created. The practice lowers inventory levels that results in lower logistical cost (Langley et al, 2008).

8. According to the data released by the Kenya National Bureau of Statistics in 2014, Gross domestic product at market price contributed by manufacturing firms has been: 9.8% in 2010, 9.6% in 2011, 9.5% in 2012, 8.9% in 2013 and employment has moved from 261,700 in 2010, 270,200 in 2011, 271,000 in 2012 to 280,300 in 2013. The role of the manufacturing sector in Vision 2030 is to create employment and wealth. The sector’s overall goal in the millennium development goals (MDG) is to increase its contribution to the GDP by at least 10% per annum over the medium term period 2013 - 2017 as envisaged in the Vision 2030 and propel Kenya towards becoming Africa’s industrial hub The sector has a high potential of employment creation as seen to have grown from 261,700 in 2010 to 280,300 in 2013 with impetus for growth of other sectors such as the agriculture and also offers significant opportunities for export expansion.

9. Problem of Research Manufacturing firms in Kenya have come to realize that effectiveness and efficiency of employing the supply chain improvement approaches leads to competitive advantage and meeting customer needs. Vilares and Coelho (2005) point out the positive effects of customer loyalty on customer retention and on the overall profitability of the firm. In addition, loyal customers not only increase the firm’s stock value, but they also enable them to maintain costs lower than those related to attracting new or recovering old ones.

10. According to Bolo and Wainaina, (2009), firms are focusing on becoming efficient and flexible in their manufacturing methods. Due to competition, organizations need different strategies to manage the flow of goods from the source to the end user. However, they have not been able to formulate the right strategies required to achieve best practices in SCM. Exceptional performance in Supply Chain requires several strategies including use of models and analytical tools then skilled manpower to interpret and then use the information for decision making. Globalization is forcing companies to look for better and more inter-linked systems to coordinate the efficient flow of materials into and out of the firm.

11. Kenya Association of Manufacturers (2002) posits that price de- regulation, proper forex management and introduction of investment incentives have, not changed the overall supply chain performance. The SCM networking in Kenya is weak and because of this, there exists little inter-industry integration in the country, leading to consistently low manufacturing value added in the sector (KAM 1989). Growth in the sector was, however, impeded by depressed local demand, increased energy and transport costs. Some of the research questions that arose from the study include: What are the supply chain techniques adopted by the manufacturing firms? Do the techniques lead to better performance? What are the challenges faced through application of the techniques in supply chain?

12. Objective of the Study 1.To determine supply chain techniques used by manufacturing firms. 2. To evaluate the effects of the supply chain techniques on performance. 3. To establish the challenges faced by manufacturing firms in the implementation of the techniques.

13. THEORETICAL FRAMEWORK Techniques in Supply Chain Improvement All operations no matter how well managed still need improvement (Slack et al., 2010). There is need to manage the total distribution activities as a complete system Christopher (1996), having regard for the effects of decisions taken in one cost area upon other cost areas, thus having implications for the cost accounting system of the firm. Supply chain, minimizes setbacks in the supply chain, reduces costs, improves customer satisfaction through timely delivery, increases productivity through the use of best practices in the field and improves information flow Nyamwange (2010).

14. The theoretical review, informed by Slack et al., (2010), looked at some of the techniques applied by businesses in their pursuit of process improvements which were: Total Quality Management Chase et al., (2010) define TQM as managing the entire organizations so that it excels on all dimensions of product and services that are important to customers. To measure customer service and satisfaction for all their products and services, firms can track, for instance customer complaints through daily logs, returns, warranty repairs, waiting time and other similar measures that will link firms to their customers Slack et al., (2010). Farrington et al., (2012) outlines some of the benefits of TQM to be: improved customer satisfaction, enhanced quality of goods and services, reduced waste and inventory, improved productivity, better utilization of HR, and improved customer service and delivery times.

15. Information Technology IT is the most common single type of technology within the SC and includes any device which collects, manipulates, stores or distributes information (Slack et al, 2010). The role of IT in SCM has changed dramatically in recent years, transforming business operations (Ghiassi and Spera, 2003, Shore, 2001), from Electronic Data Interchange (EDI) systems and Enterprise Resource Planning (ERP) systems to internet for supporting SCM (Pant et al, 2003, Shore, 2001). Due to the popularity and functionality of the internet, many researchers have realized that benefits can be derived from applying IT to communication and systems management in SC (Lancioni et al, 2003). The use of internet and other online enablers have allowed transactions to perform on a real time basis. Electronic SCM has streamlined and optimized operations in the SC by ensuring maximum sales growth and ensuring constant low cost supplies.

16. Lean Manufacturing According to Engsrom et al., (2013), lean is a management philosophy that enhances customer value through waste elimination and continuous improvement in a system, by applying lean principles, practices and techniques. The focus on lean implementations and research had been on a single company without extension to the entire supply chain. Lean supply chain management is not exclusively for those companies who manufacture products, but by businesses who want to streamline their processes by eliminating waste and non-value added activities. Companies have a number of areas in their supply chain where waste can be identified as time, costs or inventory. To create a leaner supply chain, companies must examine each area of the supply chain (Murray, 2013).

17. Six Sigma Aboelmaged (2010) refers to Six Sigma as the philosophy and methods companies such as General Electric and Motorola use to eliminate defects in their products and service. Six Sigma is about meeting customer requirements and stakeholder expectations, and improving quality by measuring and eliminating defects. Slack et al, (2010): General Electric (GE), who were probably the best known of the early adopters of Six Sigma, described it as a disciplined methodology of defining, measuring, analyzing, improving and controlling the quality in every one of the company’s products, processes and transactions with the goal of eliminating all defects. De Koning et al, (2008): the lean Six Sigma approach draws on the philosophies, principles and tools of both.

18. Benchmarking The process of benchmarking is understood as simply the process of measuring the performance of one’s company against the best in the same or another industry as outlined by Spendolini (1992). It was further redefined by Fitzsimmons et al, (2006) as a tool to improve organizational performance and competitiveness in business life. The concept of benchmarking clearly provides opportunities for businesses to adapt learning from other comparable operations to one’s own performance or methods. In order to carry out supplier development, utilization of benchmarking approach is carried out, as a tool for continuous improvement in quality and performance (Datakumar et al, 2003).

19. Kaizen Brunet and New (2003) presented it as one of the underlying principles of Lean Management and Total Quality Management. Kaizen philosophy has been ingrained in the minds of businessmen and has been implemented all around the world in order to improve productive values and improving employee morale and safety. Slack et al, (2007) defines Kaizen as the participation and mobilization of workforce in process improvement. Aken et al, (2010): Kaizen is a Japanese word for ‘Continuous Improvement’. According to Brunet and New (2003),, keeping in mind of the core principal which is to make small and immediate improvements in the processes and maintaining standards of the workplace.

20. It is believed that Kaizen theory consists of three main core concepts. The first element of this theory suggests that in order to produce good outcome, management should be focused on creating sound processes; hence process orientation (Berger, 1997). Sequentially, the second element highlighted by Imai (1986) outlines that in order to maintain and improve standard performance, innovations and effort should go hand in hand. Lastly, it is believed that involvement of employees in the organization results in intrinsic desire for quality and productivity in a long run, hence people oriented.

21. Techniques and Performance Maire et al., (2008): today’s highly competitive, rapidly changing global economy has been compelled to consider that TQM would only be successfully implemented if management is supportive of a life long process of improving consistently in comparison with competitors by benchmarking against the best industry. This means that, if we as operation managers decide to practice TQM, then we will automatically be practicing benchmarking which is necessitated to focus on continuous improvement to aim at achieving total customer delight, also known as, customer satisfaction. According to Lagrosen (2001), Kaizen aims for continuous improvement and two main elements it focuses on is to reduce waste and to enhance quality of the processes, of the people involved and therefore the products.

22. White (1996), pointed out that combined use of internet with SC allows customers and suppliers to share mission critical information on a timely basis to enable effective, real time decision making. Internet in SC management can add value in a number of ways such as; saving cost, improving quality, delivery and support, and offering greater competitive advantage (Kalakota and Whinston, 1996).

23. Challenges to Supply Chain Improvement Cost and operational control is a challenge because Supply chain costs are under pressure from rising freight prices, more global customers, technology upgrades, rising labor rates, expanding healthcare costs, new regulatory demands and rising commodity prices (Slack et al., 2010). To control such costs there are thousands of potential metrics that supply chain organizations can and do measure (Christopher, 1986). Planning and risk management are continually unpredictable due to fluctuations in demand and external issues like the economic conditions. Supply chains must periodically be assessed and redesigned in response to market changes, including new product launches, global sourcing, new acquisitions, credit availability, the need to protect intellectual property, and the ability to maintain asset and shipment security (Bryne et al, 2006).

24. Expertise in different field is a limitation especially in developing supply chains. As experienced supply chain managers retire, and organizations scale up to meet growing demand in developing markets, talent acquisition, training, and development is becoming increasingly important. Supply chain leaders need a thorough understanding of the key competencies required for supply chain management roles, specific job qualifications, methods for developing future talent and leaders, and the ability to efficiently source specific skill sets (Murphy et al., 2008).

25. METHODOLOGY OF RESEARCH General Background of Research The study was carried out through cross sectional survey design. The survey was a field study conducted within Nairobi, since most of the manufacturing firms are located within Nairobi due to the convenience in terms of accessibility, time schedule and financial resources available.

26. Population and Sample of Research The population included small and mediums sized manufacturing firms within Nairobi County. As per KAM, larger firms are those with 1000 employees and above; medium are those with 200 – 1000 employees. Other criteria included turnover. A sample from 33 manufacturing firms was selected. To get 33 samples from the firms, cluster sampling was used. The selected samples were adequate for an inclusive data analysis as per the study objectives and generalize a conclusion on the entire population.

27. Instruments, Procedures, and Data Analysis Primary data was used in the study where a structured questionnaire was and was divided into 4 parts:  Part I- general information about the organizational profile.  Part II- adoption of supply chain improvement approaches  Part III- effects of supply chain improvement and  Part IV- challenges of implementing the approaches The respondents were presented with descriptive statements about the management involvement in the supply chain improvement in a Likert scale that was used to score.

28. The nature of data collected was largely quantitative thus the study used descriptive statistical tools for analysis (Mean scores, Standard Deviation and Percentages) to analyze the data that was collected. The percentages show the proportion of respondents who score in different variables. Findings were presented in a tabular form for ease of interpretation and reporting. Tables enable the reader to compare the trend of distribution more vividly than simply looking at the numbers.

29. RESULTS OF RESEARCH The study targeted 33 manufacturers in Nairobi. A total of 33 questionnaires were administered. The research managed to collect 29 questionnaires representing a response rate of 87.9 percent. The researchers used a developed open questionnaire to obtain the relevant data. This questionnaire was divided into 4 parts.  Part I- comprised of the general information about the organizational profile.  Part II- comprised several questions about the supply chain improvement approaches,  Part III- comprised of the effects of supply chain improvement and  Part IV- comprised of the challenges of implementing the supply chain improvement approaches of the manufacturing firms.

30. MeanStd. Dev TQM The organization continually checks the defects from products. 4.51.63 The organization facilitates mechanisms that enhance product quality 4.31.80 Involving suppliers who agree to work towards management excellence 3.93.88 Benchmarking The organization assesses its performance against other firms 3.821.16 Engaging with suppliers who are ethical in their professional fields. 4.2.92 Application of Supply chain techniques Table 1: Extent of adoption of SC techniques

31. Use of IT The organization embraces real time information 4.27.64 The organization uses technology in sales, stock management and distribution of products for customer satisfaction that enables it to achieve margin through volumes 4.06.88 Kaizen The organization coaches staff for continuous improvement 4.48.68 Lean Systems The organization focuses on demand and supply in order to keep minimum inventory levels 4.31.76 The organization uses a systematic requisition method to ensure materials are delivered to the production section on time 4.17.80

32. From Table 1: There is indication that the manufacturing firms have adopted the SC approaches and hence can be used as a benchmark to measure performance in the manufacturing firms. The organizations that use SC techniques matched our literature, that is, they have reduced waste leading to reduced costs and customer satisfaction by producing quality goods. Basing the analysis on Aboelmaged (2010), the manufacturing companies that used Six Sigma continually reduced defects hence meeting customer requirements through improved product quality.

33. MeanStd. Dev Reduction on defects through use of total quality management systems 4.31.54 Customer market share by improving on quality 4.34.72 Reduction of cost by producing the only needed products 4.31.60 Quality control through immediately inspection of system errors 4.10.97 Good supplies through use of real time information 4.00.65 Order fulfillment through use of technology 3.89.81 Table 2: Effects of use of techniques in SC on Performance

34. Competitive advantage through benchmarking4.00.96 Price competition through timely deliveries 4.10.67 Customer retention through forecast of demand due to use of ERP systems 4.48.51 Quality control through immediately inspection of system errors 4.10.97 Inventory cost management and profit maximization through lean systems 3.75 1.15 Reduction of cycle time due to efficient supplies 3.65.97 Increased revenue due to customer loyalty 3.93.88

35. From table 2: Organizations that practices sound supply chain improvement approaches as was reflected in the literature review has grown due to: Increased efficiency in the supply chain Improved on quality products and services Improved customer satisfaction through speed delivery Realization of lower cost

36. Mean Prediction of market fluctuations of demand and supply with certainty 3.06 Having skilled expertise on right jobs. 3.44 Resistance to change 3.48 Supporting innovation across value chain; attitudes and knowledge lacking 3.48 Delays on delivery 3.37 High cost of transportation 4.20 Globalization of customers and suppliers 3.68 Constrained layout design. 3.44 Risk management (External suppliers) 3.96 Adherence and proper management of continuous improvement in performance 3.37 Regulatory compliance comes with costs 3.31 Lack of management support 3.20 Table 3: Challenges Faced In Implementing SC techniques

37. FrequencyPercent (%) Clear documentation 26.9% Improved infrastructure and technology 413.8% Having high responsibilities to customers 26.9% Improving quality of goods 26.9% Sourcing of human capital 517.2% Reduce cost of transport of goods 724.1% Training of staff 724.1% Total 29 100% Table 5: Possible solutions to the challenges facing manufacturing firms

38. DISCUSSIONS AND CONCLUSIONS Examining supply chain as defined by Farrington (2012), as the network of an organization that are involved, through upstream and downstream linkages in different processes and activities that produce value in the form of products and services in the handling of ultimate consumer, the researchers provide a summary of findings in relation to the adoption of techniques and their impact on organizational performance on manufacturing firms in Nairobi.

39. Summary of the Findings The study findings revealed clearly that manufacturing firms adopts specific supply chain improvement approaches that are aligned in the value chain and the approaches have significantly contributed to the performance of the firms and hence creating competitive edge by focusing on operational effectiveness and efficiency. The findings concur with the literature review on other similar studies of other organizations. At this age of very uncertain, sporadic business environment and stiff competition coupled with a very knowledgeable customer, manufacturing firms are turning inward, tapping as much value from their core competencies to establish a sustainable competitive edge through operational efficiency.

40. The adoption of various supply chain improvement approaches have impacted positively on the organization performance and consequently on building its operational efficiency. Supply chain provides a very fertile ground of creating competitiveness and hence the move by some organization to reposition this approaches to value chain to reduce costs and enhance quality of goods. As leaders world-over are realizing the value in implementing the SC improvement approaches and now viewing supply chain as strategic imperative, they grapple with serious implementation challenges. In this study, the respondents site poor infrastructure and high cost of transportation as challenges leading to poor performance of the organization. External suppliers must be considered in the supply of goods to reduce switching of customers..

41. Conclusions The study established that manufacturing firms practice improvement approaches such as Six Sigma, lean systems, TQM, benchmarking, among others. The management of these firms have taken keenly the approaches in order to remain competitive in the market. Based on the findings of the study and the forgoing discussions, it is clear that manufacturing firms in Nairobi have adopted supply chain approaches that have contributed to good performance. The challenges faced by the firms include access to finance, expertise, planning, cost control and risk management. Some of the solutions may include, lowering of interest rates by the government, professional outsourcing, 3rd party collaboration and performance contracting.

42. Recommendations and Suggestion for further studies The supply chain approaches need to be embraced beyond manufacturing firms for better economic growth. Execute quality induction programs to all new staff to understand the improvement approaches as well as improve communication style and feedback are likely to positively impact performance of the organization. Management should have good relationships with suppliers so that goods are delivered on time when needed hence eliminating waste of raw materials. Investment in information technology and infrastructure enables seamless interaction with other supply chain business platforms will create efficiency.

43. Research should be carried out on supply chain improvement approaches in other firms apart from manufacturing firms to see the impact on performance of these firms as this can be used for comparability purposes among the various firms to enhance performance. Also the research should be carried out on the supply chain strategies used by manufacturing firms to improve performance.

44. THANK YOU