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How Functional Activities Need to Be Aligned to Support a Firm's Continuous Improvement - Case Study Example

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It gained further importance when authors such as, Gereffi and Korzeniewicz (1994), explained the impact of global value chain development in terms of distribution and integration…
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Discuss how functional activities need to be aligned in order to support an organisation’s strategic goal to engage in continuous improvement. Introduction The concept of value chain from the global perspective had started gaining importance since 1990s. It gained further importance when authors such as, Gereffi and Korzeniewicz (1994), explained the impact of global value chain development in terms of distribution and integration of resources and processes on income and profit. Value chain was further highlighted on by Michael Porter in his book named Competitive Advantage (Porter, 1985). He had explained the role of value chain as imperative for developing competitive advantage in organisations. According to Porter (1987), value chain links various activities within and around an organisation for building and strengthening competitive edge. Consequently, value chain analysis evaluates every activity for the value that it contributes towards organisational products or services. The concept was developed because it had occurred to a number of researchers, marketers and academicians that an organisation is not a mere compilation of resources, expertise and fund and these factors require to be arranged in a systematic manner so as to achieve optimum outcome. In this context, Porter (1985) argued that appropriate management and accurate linkage established among these factors will yield a source of competitive advantage. He presented a basic model that integrates organisational activities for ensuring competitive advantage, which is presently known as Porter’s generic value chain model: Figure 1 (Source: Porter, 1985) In this model, Porter (1987) defined nine important areas of operation and further classified them into primary and supportive activities. The primary areas mainly comprise inbound logistics, operations, outbound logistics, marketing and sales and service, while the supportive areas include procurement, technology development, human resource management and firm infrastructure. All these activities collectively aim at achieving optimum profit margin for a firm. Altenburg (2007) had underlined that development of value chain is of paramount importance for an organisation, which must increase its efforts in order to incorporate greater number of resources so as to achieve increased level of productivity and earnings. Integration of functional activities for achieving competitive advantage In this paper, the functional components of an organisation and their integration for supporting strategic goals and achieving continuous improvement will be discussed in context of value chain system as proposed by Porter (1985). The primary areas or components as per the generic value chain model are explained below. Primary activities Inbound Logistics Inbound logistics is an integral part of the organisational activities, which is involved with the process of receiving, warehousing and disseminating raw materials for the purpose of production activities. In the value chain model, it is the most important activity as described by Porter (1987). Most organisations rarely pay importance to inventory management and control, which is necessary for optimisation of inbound logistics processes (Stock and Lambert, 2001). Receiving raw materials and managing the warehousing activities are complex processes and in large organisations, the same involve massive investment. Moreover, these are the primary aspects of inbound logistics. In most small organisations, the warehousing facilities are maintained in the production area; whereas in large organisations, separate facilities are created for receiving and storing raw materials and quality check and quality assurance activities are performed for total quality management. In inbound logistics, material receiving and storage is considered significant as resource dissemination is greatly dependent on the same. Proper raw material distribution ensures smooth flow of other activities. Material distribution is conducted as and when requested so as to avoid unnecessary distribution and wastage of excess resources. On the other hand, improper distribution results in production delay and increased cost of production. So, efficiency in raw material (inventory) management is extremely important (Cooper, Lambert and Pagh, 1997). Operations An operation in the value chain process is defined as the process of converting raw materials (inputs) to output (products and services) with the help of machinery and expertise. Operations management is one of the core functions of an enterprise and is responsible for resource planning, coordination and controlling in order to improve product delivery and services. Operations management is primarily responsible for development of the utilities from raw materials. Then again, responsibilities of operation management are not limited to a single function. Operations management is responsible for meeting the consumer demands while complying with organisational objectives of integrity, effectiveness and efficiency (Porter, 1987). According to Porter (1985), operations management involve transformation of inputs into final goods and performing related activities such as, assembling, testing, packaging and maintenance. The activities of operations management can be classified as: Material Requirement Planning (MRP), Just-In-Time (JIT) production and Enterprise Resource Planning. MRP is a comprehensive process of pre-determining the material that will be required for achieving production target and its management. It ensures that resources are efficiently allocated and order for material and delivery is synchronised in an efficient manner. MRP prevents material shortage and reduces lead time as well as overall production cost (Stevenson and Hojati, 2007). Just-In-Time production, also known as lean production, is the process of producing and delivering the final product at the time of selling. Such a process ensures that the manufactured finished goods are not stocked in the warehouse, awaiting sale. JIT is a complicated process, but complements the MRP system. JIT improves the production system through quick conversion of material, administrative efficiency and lower capital requirement (Monden, 2011). ERP is a recent and very significant development with respect to MRP as it integrates every resource present in an organisation in order to optimise operational activity. It helps in improving product quality and related services, resulting in inventory accuracy, reduced set-up time and quicker inventory turnover. These three aspects, along with technological development, effectively improve efficiency of operations management (Stevenson and Hojati, 2007). Outbound Logistics According to Porter’s generic value chain model (1985), the outbound logistics mainly involve warehousing and distribution of the final products (finished goods). Outbound logistics management is very crucial for organisations owing to the cost involved and company’s market share. In inbound and outbound logistics, a number of activities such as, procurement and management of inventory (finished products), warehousing and despatching, are similar in nature (Porter, 1985; 1987). Outbound logistics is an important component of supply chain management and involve activities such as, documentation, route management and proof of delivery. The main focus of outbound logistics is to deliver products to consumers while complying with the given specifications regarding the same. Documentation is necessary in outbound logistics so as to upkeep record of the products that has been despatched from warehouses to distribution channels. Additionally, under documentation, the serial number, batch number, date of despatch and delivery and delivery vehicle information are covered so that shipment can be located easily (Cooper, Lambert and Pagh, 1997). In outbound logistic management, route management is important as occasionally an organisation requires bearing the cost of shipping. Thus, the logistics managers need to determine alternatives routes so that time and cost can be saved. Moreover, quicker delivery of products results in greater consumer satisfaction. The third important aspect of outbound logistics is proof of delivery. The proof of delivery acts as a confirmation on the consumers’ part regarding delivery of the shipment. Proof of delivery minimises confusions and scope of theft and product misplacement (Stock and Lambert, 2001). Marketing and sales Marketing is a broad concept while selling is considered as a part of marketing. Despite being interrelated, there are certain aspects that differentiate marketing from sales. Selling is the process of pushing a product or service to buyers, irrespective of their needs. On the other hand, marketing creates need and demand for a product in the consumer’s mind and sell them at a competitive price to provide ultimate satisfaction. In selling approach, the main focus is on product sale; whereas in marketing approach, the focus is on creating product position in the consumers’ mind. Marketing concentrates mainly on selling the product concept to buyers and potential consumers (Porter, 1987). Keeping in view the strengths of both these concepts, in a perfect competitive world, marketing and sales should share a common vision so that the larger focus is upon consumers, as opposed to the products. Aligning sales and marketing will entail creating and selling the right product to the right consumer at the right time. There are several advantages of integrating sales with the marketing process. Alignment of sales with marketing develops a shared mission with a single focus. It helps in framing strategy that will serve both long-term and short-term goals. Marketing and sales together devise a customer focused process with end-to-end planning. The consumer trends and potential consumer base is developed using the past purchase data and forecasting methods. The demand is generated by using a combination of sale and marketing techniques. With the help of sales techniques, products reach to the consumers. At the same time, the marketing techniques ensure brand loyalty and greater market share (Sullivan, 2001). Services According to Porter’s generic Value chain model (1985), product creation and its delivery is not sufficient for optimising overall functions of an organisation. Post purchase or after-sales services are also very important. Customer service is an important part of value chain management as the customers are important assets of an organisation. Services post sales and marketing include a number of activities that are undertaken by firms in order to obtain a clear understanding of consumers’ satisfaction level regarding the product or services offered. In present competitive market, customer satisfaction is very essential. Through customer satisfaction, a firm’s commitment towards delivering quality product and services is expressed, which eventually has a positive impact on generating customer loyalty. Organisations are competing to provide better customer services so as to retain the existing consumers and gain a strong potential consumer base. With help of advanced technologies, organisations are improving their customer services. Currently, companies operating worldwide are highly focused on developing efficient customer relationship management. Customer service management is generally classified as the following: delivery, installation, warranty, service quality and feedback. As a part of consumer services, organisations often provide home delivery facilities. According to Porter (1987), delivery is influenced by two major dimensions, namely speed and reliability. Nowadays, organisations are undertaking sufficient efforts to deliver the right product at the right time at the right place. Installation is the process of setting up machineries for the first time. Organisations provide such supports to minimise hassle and increase convenience of consumers. Installation is offered so as to increase competitive advantage and create an impact on consumers’ perceptions. Warranty is considered as a formal obligation on part of the seller. It is the responsibility of the seller to ensure that the product is useful in long run. Warranty shows that the product has minimum chances of failure and the company will take responsibility for failure within the warranty period. In the service industry, an enterprise needs to ensure that quality of service offered is maintained and continuously improved. Lastly, feedback mechanism is increasingly gaining importance. Organisations are interested in knowing preferences of their consumers so as to serve them better. In this context, feedback is regarded as the most appropriate measure. Secondary/supportive activities Procurement Procurement can be defined as the process of acquiring raw materials and other components related to product and services at the best market price in right quantity and quality from the right place (supplier) and at the right time. Procurement is the main purchasing function of an enterprise. In large organisations, the procurement activities are managed by more than one department. In order to compete in a globalised environment, companies are moving beyond the traditional definition of procurement, which implies that the organisational procurement activities are no more limited to acquiring raw materials. According to the recent studies, procurement is being given the status of strategic decision, taking in account the growing instability in global operations and continuous evolution regarding the same. Organisations are currently engaged in cutting-edge practices, where business activities are procurement driven for achieving competitive advantage. Procurement is being linked directly to growth so that various opportunities can be capitalised on at the right time while minimising scope of threats. In past few years, it has been witnessed that companies that are evolving as procurement organisations are integrating four components in their growth structure, namely strategic alignment, data analysis, complexity reduction and PLC (Product Life Cycle) management (Stock and Lambert, 2001). The procurement-driven organisations are focused on aligning their procurement related strategies with that of their business and corporate functions so that a comprehensive strategy can be developed for attaining organisational goals. Data analysis involves assessment of the external environment so that fact-based decisions can be taken, which will support progressive changes within an organisation. Data analysis also helps in developing an immunity system for the organisation. Procurement process is an important supportive function to the primary functions of value chain, which considerably influences on logistics and overall supply chain management. It is, therefore, necessary to rationalise cross-functional activities related to procurement and minimize complexities related to products and components. Procurement driven organisations ensure that the process is integrated in the product life cycle so that resources are timely available and production delay is reduced (Cooper, Lambert and Pagh, 1997). Technological development In present-day competitive environment, technological intervention has increased tremendously and is being embodied in every value chain activity. The technological development can be tangible as well as intangible in nature and includes procedures, software development and technological expertise. Porter, in his book, had mentioned that in majority of the firms, an array of technologies are deployed for preparing documents, storing information, procuring and transporting products and in production operations. In addition, technologies are being utilised in supply chain, resource management and marketing activities (Porter, 1985). It is noteworthy in this context that industries are undergoing major technological change and the distinguishing line between soft and hard technologies is dissolving at a rapid rate. Organisations are reducing their extreme dependence on hard technologies and integrating human resources in the same for achieving an optimum outcome. The hard technologies are highly efficient and inflict greater productivity, but the cost involved is also high and often not feasible. As a result, organisations are merging hard technologies with non-technical resources in order to develop a human-technology interactive system. Technological development can be observed in every segment of an organisation. For instance, resources are managed through payroll management system, ERP, online MRP and other business software. Furthermore, due to increasing technological interventions, organisations are concentrating focusing more upon employing e-commerce for business activities. Technological developments have improved efficiency of organisational activities while reducing the overall cost. Technological advancement is essential from industrial perspective as technologies have the ability to create competitive advantage by integrating various activities within an organisation. In context of value chain, technologies can be regarded as an important supportive area because organisations can use technologies for coordinating their inbound and outbound logistics and marketing activities. In case of operational activities, every organisation relies upon hard technologies such as, machineries and equipments, for material flow (Zhouying, 2003). Human resource management Human resource management can be considered as a complementary area with respect to the primary areas of value chain as a firm cannot operate without human resources. Hence, human resource management is of great importance from strategic point of view. The main activities involved in human resource management are recruitment, selection, training and development, remuneration and compensation, maintenance and separation (Porter, 1987). The scope of HRM is not limited to above mentioned functions and also encompasses job delegation and rotation, work relationship management, employee motivation and maintenance of industrial relationships. The activities of HRM are dispersed across the organisation and is not concentrated or limited to a particular segment or area. The human resource policies are always consistent with organisational goals and objectives. Presently, organisations do not view HRM as a mere administrative function. It is rather aligned with various strategic plans so as to exercise better control over resources (Daily and Huang, 2001). Ulrich (2000) explained that for achieving optimisation in strategic decisions of a firm, the management need to align activities of human resource in strategic decisions. Human resource is a source of competitive advantage. However, organisations must undertake initiatives in order to develop strategic competencies among personnel. The personnel need to be updated with business knowledge, financial and marketing information and consulting skills. In context of human resource management, most firms make a major mistake by not considering the costs and benefits associated with human capital. Cost-benefit analysis of human capital helps in realizing contribution of the resources, costs associated with new recruitment and training for existing resources and strategic talent gap. Firm Infrastructure A number of activities can be related with firm infrastructure such as, general management, organisational planning, finance and accounting, quality management, production and operation, human resources, information system and legal aspects. Infrastructure, by definition, suggests that it shapes the overall structure of value chain. According to Porter, firm infrastructure is greatly dependent on the degree of diversification exhibited by a firm. A firm with greater diversity is generally divided in various sub-units and a parent company (Porter, 1985). The components of firm infrastructure are extremely sensitive in nature and have a great impact on its efficiency. These components determine the ability of a firm to achieve strategic competitiveness. According to various authors, firm infrastructure should create a favourable environment for innovation therein so that continuous improvement can be undertaken (Porter, 1987; Menger, 2001). Importance of continuous improvement: Operations and logistics management The various reasons that support cost improvement in operations and logistics management are described as follows: Cost control One of the important aspects of continuous improvement is cost control and efficiency. With increasing competition in every industry, cost associated with raw materials, labour, energy and other resources is increasing at a rapid pace. Rise in resource cost result in increased production cost, which is why firms must pursue measures such as, green technology, energy efficient manufacturing process, reduced paperwork and automated MRP system, so as to have competitive advantage against rising cost. Optimum utilisation of production process Incorporation of continuous improvement in logistics and operations management enables an organisation to recognise areas of improvement in resource and process management. Continuous evaluation allows an organisation to enhance efficiency of the processes and utilise the idle processes in a productive manner. Continuous improvement ensures complete integration of all activities related to production and supply chain. Improved Quality Continuous improvement helps an organisation to recognise the weak links and work upon them so as to serve the consumers better. Through continuous improvement, organisations gain better access to the right resources at the right time and at the right cost. Consequently, the company’s product and delivery services improve. Competition In the present unstable market, integrating continuous changes is important, which enables an organisation to have better knowledge of its competitors and their products. Logistics is one of the important factors that provide competitive advantage. Incremental changes in production and logistics will help organisations to stay ahead of the competitors (Pérez, González and Gallardo, 2008). Importance of continuous improvement: Marketing and sales management Continuous improvement in marketing and sales management is imperative as it ensures greater market return and increase in market share. Although the concept of continuous improvement is mainly used in quality management, it has sufficient applications in marketing and sales management: Kaizen Kaizen is a Japanese term that stands for ‘change for better’. Continuous enhancement results in increased efficiency among the management teams and sales force and wastage of resources is reduced. In an organisation, continuous changes can be implemented in updating its marketing database and for improving sales techniques applied by the sales force (Chang, 2005). Product Product marketing is becoming complicated with increasing number of substitutes and competitors within an industry. Through continuous improvement, marketing teams can develop innovative ideas, which can further be converted in promotion and other advertising strategies. Consumer satisfaction Continuous improvement entails increase in consumer satisfaction by multiple folds. It can be achieved through gathering feedback and conducting surveys. Additionally, through continuous improvement, an organisation can recognise and work upon the weak areas. Consequently, through high consumer satisfaction, a firm can earn better market reputation (Chang, 2005; Elmuti and Kathawala, 1997). Continuous improvement and competitive advantage through value chain integration The present business environment is highly unstable and integration of value chain activities for continuous improvement is inevitable. Apart from continuous improvement, another strategic goal that firms mainly focus upon is that of gaining competitive advantage (Elmuti and Kathawala, 1997). In this section, integration of the primary and supportive activities of value chain for achieving continuous organisational improvement and competitive advantage will be discussed. Continuous improvement In present-day highly competitive market, survival of organisations has become extremely difficult, which is why they are heavily investing in value chain management. The term, continuous improvement, is mainly concerned with quality. However, quality does not imply product quality only; it is a broad concept that encompasses the overall quality of organisational activities. Hence, continuous improvement in value chain activities is necessary for attaining the ultimate goal of quality management. Competitive organisations commit towards producing high quality products and delivering high quality services at competitive prices. An organisation needs to undertake holistic approach towards quality control and assurance in order to develop such capabilities. There are a number of methodologies under continuous improvement, which focus on quality management (J. Singh and H. Singh, 2013). These techniques are explained below. Total Quality Management (TQM): The primary elements of TQM focus on developing products and services that are consumer approved in terms of specifications and quality. The process ensures full participation of all employees through various forms of employee empowerment such as, self-managed teams. Under TQM, quality assurance is ensured at every step, ranging from procurement of raw material to delivery of the product. In addition, an integrated approach is followed, where marketing strategies are developed in a manner that facilitates maximum consumer satisfaction (Chang, 2005). Lean manufacturing: Lean manufacturing is also known as JIT production. It is defined as the process of continuous flow of material for the purpose of production at the time of sale and as per consumer specification. Lean manufacturing is a highly specialised method of operations management requiring forward as well as backward integration of various departments such as, marketing, finance, purchase, production and logistics department. In order to ensure continuous improvement and quality assurance, lean production is governed by certain principles such as, six sigma quality, minimum production delay, short lead time and production floor safety maintenance (Lewis, 2000). ISO standards: The International Standards Organisation has developed a number of standards for quality management, which act as benchmark in this regard. There are specifically five standards, namely ISO 9000-9004. These standards are revised in a timely manner so as to keep pace with the changing environment. ISO standards not only present a benchmark for product and services, but also for overall organisational activities (Bernett and Nentl, 2010). In addition to these techniques, continuous improvement in quality is ensured through PDCA cycle, where PDCA stands for Plan, Do, Check and Act. In this cycle, planning involves defining the activities, boundaries and resource requirements, procurement and allocation. The ‘doing’ step involves execution of the planned activities as per the schedule. In ‘checking’ step, the results are accessed and compared to the benchmarks so that flaws and shortcomings are identified and corrected. In the ‘act’ step, various alternatives are developed for attaining better productivity, the most suited alternative is implemented and the cycle is re-initiated (Sokovic, Pavletic and Pipan, 2010). Competitive advantage Porter (1985) had explained that although the primary and secondary activities of value chain are foundation factors of competitive advantage, it is important to establish or develop relationship between these activities. Since value chain is a system, performance of the system cannot be realized without meaningful linkage or relationship. He had observed that competitive advantage can be achieved in two ways through linkage; optimisation and coordination. Linkage or interdependent relationships often result in tradeoffs between one or more activities for obtaining the same result. For instance, expensive product design and strict material specifications may minimise the service costs. There are many such linkages existing within a value chain. A firm must recognise these linkages and optimise them in strategies directed towards earning competitive advantage. Apart from tradeoffs, the activity linkages often reflect the need of developing coordination among activities. Coordination is generally exhibited among complementary activities. For instance, timely delivery may require coordination among inbound logistics, operations, outbound logistics and services. Linkage coordination results in either cost advantage or product differentiation. In this context, one must note that the existing linkage between various activities lead to continuous improvement in processes, quality and services. Linkage can be observed between almost all the activities. Nevertheless, the important linkages that entail competitive advantage are the ones established between primary and supportive activities. In a value chain, the process of selecting an appropriate linkage needs information or flow of information. The information flow contributes towards determining whether to optimise or coordinate the activities. Therefore, information systems play a vital role in gaining competitive advantage from the inter-links among activities. Linkages are not only horizontal, but also vertical in nature. The horizontal linkages are those that exist within a firm, whereas those linkages present outside the value chain are the vertical linkages. Vertical linkages are relationships that are observed between value chain of a firm and that of the suppliers, buyers, distribution channel and other industrial components. Due to existence of vertical linkages, cost and performance of suppliers’ or channels’ activities affect that of the firm and vice-versa. For instance, the procurement activities and inbound logistics of a firm are impacted by order processing of the suppliers. The interdependency of between a firm’s value chain and that of the suppliers creates opportunity for the former to achieve competitive edge. Similarly, channel linkages have an impact on the cost of a firm’s products. Even so, several important linkages are often overlooked due to lack of sufficient information (Porter, 1985). Conclusion The current paper aimed at discussing alignment of the functional activities in order to support an organisation’s strategic goal to engage in continuous improvement. In this regard, the paper includes evaluation of various components of value chain analysis as well as that of the linkages that these components share. These linkages are very important from a firm as well as industry perspective as they are the sources for a firm’s competitive advantage. Competitive advantage is not merely about surpassing capabilities of the competitors, but also realizing and determining the consumers’ needs and satisfying the same at a competitive price. The concept of ‘Value Chain’ was first proposed by Michael Porter (1985), who had suggested that organisations require integrating their various activities such as, procurement, logistics, operations and production, human resource management, technological advancement, marketing and sales and services, in order to create and sell a product that meets the consumer requirement. Besides competitive advantage, the paper has also highlighted on another strategic goal that every firm strives to achieve in the present volatile business environment. That is continuous improvement. Continuous improvement is mainly associated with quality management. In other words, an organisation should continue to improve its quality standards so as to stay ahead of the competitors. It was ascertained that competitive advantage and continuous improvement are interrelated and are also impacted by value chain integration. The arena of value chain management and its role in attaining competitive advantage and continuous improvement is vast. In the current paper, adequate efforts have been made to describe the subject matter in a concise manner. Reference List Altenburg, T, 2007. Donor approaches to supporting pro-poor value chains. [pdf] Donor committee for enterprise development. Available at: [Accessed on 17 July 2014]. Bernett, R. and Nentl, N., 2010. 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California: ABC-CLIO. Lewis, M. A., 2000. Lean production and sustainable competitive advantage. International Journal of Operations & Production Management, 20(8), pp. 959-978. Menger, R.A., 2001. Small Firm Innovation and Strategic Competitiveness: The Role of Firm Infrastructure. The Journal of Behavioral and Applied Management, 3(1), pp. 27-30. Monden, Y., 2011. Toyota production system: an integrated approach to just-in-time. London: CRC Press. Pérez, B.E., González, J.M. and Gallardo, A.L., 2008. Organizational Control System in a Continuous Improvement Environment: special reference to the role of management accounting. Journal of Accounting, Business & Management, 15(1), pp. 127-168. Porter, M. E., 1985. Competitive Advantage. New York: Free Press. Porter, M. E., 1987. From competitive advantage to corporate strategy (Vol. 59). Cambridge, MA: Harvard Business Review. Singh, J. and Singh, H., 2013. Continuous Improvement Strategies: an overview. 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New Jersey: Pearson Education. Chase, R. B., Aquilano, N. J. and Jacobs, F. R., 2001. Operations management for competitive advantage. New York: Irwin/McGraw-Hill. Chen, I. J. and Popovich, K., 2003. Understanding customer relationship management (CRM): People, process and technology. Business process management journal, 9(5), pp. 672-688. Cole, R. E., 2002. From continuous improvement to continuous innovation. Total quality management, 13(8), pp. 1051-1056. Grönroos, C., 2007. Service management and marketing: customer management in service competition. New Jersey: John Wiley & Sons. Mentzer, J. T., Stank, T. P. and Esper, T. L., 2008. Supply chain management and its relationship to logistics, marketing, production, and operations management. Journal of Business Logistics, 29(1), pp. 31-46. Porter, M. E. and Kramer, M. R., 2002. The competitive advantage of corporate philanthropy. Harvard business review, 80(12), pp. 56-68. Vorhies, D. W. and Morgan, N. A., 2005. Benchmarking marketing capabilities for sustainable competitive advantage. Journal of Marketing, 69(1), pp. 80-94. Walsh, A., Hughes, H. and Maddox, D. P., 2002. Total quality management continuous improvement: is the philosophy a reality? Journal of European Industrial Training, 26(6), pp. 299-307. Wu, F., Yeniyurt, S., Kim, D. and Cavusgil, S. T., 2006. The impact of information technology on supply chain capabilities and firm performance: a resource-based view. Industrial Marketing Management, 35(4), pp. 493-504. Read More
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