The Coming of Supply Chain Management

flow of materials and were quite similar as they aimed at removing inefficiencies caused by the “bullwhip effect” as described by Forrester (1961)¹.

In the seminal work by Stevens (1989) the scope of SCM is extended:

“The scope of the supply chain begins with the source of supply and ends at the point of consumption. It extends much further than simply a concern with the physical movement of material and is just as much concerned with supplier management, purchasing, materials management, manufacturing management, facilities planning, customer service and information flow as with transport and physical distribution.” (p. 3).

Stevens continues:

“The objective of managing the supply chain is to synchronise the requirements of the customer with the flow of materials from supplier in order to effect a balance between what is often seen as the conflicting goals of high customer service, low inventory investment and low unit cost. The design and operation of an effective supply chain is of fundamental importance to every company.”

(p. 3).

Besides obtaining effectiveness in operations, Stevens advocates the early involvement of suppliers in product development, which is only possible when long term commitments are made between suppliers and focal company (i.e. the elimination of multiple sourcing).

Figure 2-1: Achieving an Integrated Supply Chain²

Customers Purchasing Material

control Production Sales Distribution

Stage one: Baseline

Stage two: Functional Integration

Stage three: Internal Integration

Stage four: External Integration Materials

management

Manufacturing

management Distribution

Materials management

Manufacturing

management Distribution

Suppliers Internal

supply chain

1 Often forgotten, the Burbidge effect describes the inefficiencies created by lack of synchronization across echelons, see e.g. Towill (1997).

2 Source: Figure 5 in Stevens (1989), p. 7.

The main contribution though in Stevens (1989) is the integration model (see Figure 2-1 above) which has had an enormous effect on the work on supply chain integration and supply chain design (referenced in e.g. Hewitt, 1994; Cooper, Lambert, & Pagh, 1997; Towill, Childerhouse, & Disney, 2002; Lockamy III & McCormack, 2004). The progression model describes how the integration of functions (breaking down of functional silos) enables the removal of interim buffer stock, making external integration and the removal of buffers all together possible. Internal integration of materials and information flow is thereby a prerequisite for SCM.

This idea is brought even further in Cooper & Ellram (1993) where SCM is compared to other types of channel relationships. Besides the overall reduction of inventory and other costs, the authors identify e.g. time horizon (relationship and planning), compatibility in corporate philosophies, sharing of risk and reward, and breadth of supplier base as characteristics distinguishing SCM. An additional goal for SCM is introduced:

“A goal of supply chain management is continuous improvement. This includes increased speed of operations, as well as improved information and inventory flows, due to better coordination and focused goals across supply chain members.” (p. 21).

Besides the smooth flow of materials and information the strategies and corporate philosophies need to be compatible in order for the cooperation to work.

The idea of optimality in supply chains is explicated in an article (Hewitt, 1994) taking a BPR view on cooperation on logistics activities across firm boundaries:

“What emerges is a long series of small steps leading to an increasingly cross-functional and process-oriented view of the activity. […] It is significant but unsurprising that the historical evidence shows that progressive co-ordination of existing functional activities, followed by rationalization of these activities has been more common than radical moves to a totally revised process management approach. Currently, few of the companies surveyed in either Europe or the U.S. have reached even the level of integration implied in Stages III or IV³. On the other hand, taking a BPR view of the reported findings, it is clear that a few enterprises are now going beyond cross-functional co-ordination to an explicitly process oriented way of working, thereby truly justifying the term supply chain process management.” (p. 3).

Redesigning the company towards process orientation might lead to improved efficiencies but

“…process redesign is only likely to be successful if it is recognized as a multi-dimensional activity, simultaneously and explicitly addressing the work activity dimension, the information flow dimension and the decision/authority dimension” (p. 5).

In the studies reported by Hewitt redesign extending beyond the scope of the individual firm is rare. Reporting from a number of leading edge companies in Europe and the U.S., Hewitt

3 The phases in the referenced framework are: I. Fragmented Technical Disciplines, II. Functional Scope, III.

Broad Scope Logistics, and IV. Links with Customers and Suppliers. It thereby resembles Stevens (1989) framework.

suggests that principles for intra-firm redesign may be appropriate for inter-firm initiatives as well.

Integration of Processes

The concept of integration is further elaborated upon in Cooper, Lambert & Pagh (1997) where the integration is described by a number of processes. They support the idea of early supplier involvement in product development, and further expand the scope of SCM by suggesting that more functions than just logistics should be integrated across firm boundaries.

The importance of process is emphasized as they claim:

“The integration of business processes across the supply chain is what we are calling supply chain management.” (p. 2).

They list of number of possible supply chain business processes and describe a SCM framework by means of three components: business processes, supply chain structure, and management components.

Figure 2-2: A Framework of Supply Chain Management⁴

Customer Relationship Management Customer Service Management

Demand Management Order Fulfillment Manufacturing Flow Management

Procurement

Product Development and Commerzialization Returns Channel

Product Flow Tier 2

Supplier

Tier 1 Supplier

Purcha-sing

Mat.

Mgmt

Produc-tion

Phys.

Distr.

Mktg. &

Sales

Custo-mer

Con-sumer Information Flow

SupplyChainBusiness Processes

Supply Chain Management Components

•Planning and Control

•Work Structure

•Organizatyion Structure

•Product flow facility structure

•Information flow facility (IT) structure

•Product structure

•Management methods

•Power and leadership structure

•Risk and reward structure

•Culture and attitude

4 Source: Figure 2 in Cooper, Lambert, & Pagh (1997), p. 10.

In a later contribution (Lambert, Cooper, & Pagh, 1998) the integration of processes across firm boundaries are described in terms of types of process links: Managed Process Links, Monitored Process Links, Not-managed Process Links, and Non-member Links. Recognizing not all supply chain partners are equally important, the effort on managing the links should be differentiated accordingly. In the 1997 article, the emphasis is on the management component - no less than ten management components are identified based on a literature review.

Besides the (by now) “classic” components “Planning and control”, “Work structure”,

“Product flow facility structure”, and “Information flow facility structure”, the authors suggest a variety of other management components, such as organizational structure, product structure, power/leadership structure in the supply chain, and the cultural context (see Table 2-1 below).

Table 2-1: Identified Supply Chain Management Components⁵

Planning and control Work structure Organization structure Product flow facilitystructure Information flowfacility structure Product structure Managementmethods Power & leadershipstructure Risk & rewardstructure Culture & attitude

Houlihan (1985) 8 8 8 8 8 8 8 8

Jones & Riley (1985) 8 8 8 8 8 8 8

Stevens (1989) 8 8 8 8 8 8

Ellram & Cooper (1990) 8 8 8 8 8

Lee & Billington (1992) 8 8 8

Cooper & Ellram (1993) 8 8 8 8 8 8 8 8 8

Hewitt (1994) 8 8 8 8 8 8

Scott & Westbrook (1991) 8 8 8 8

Towill, Naim & Wikner (1992) 8 8 8 8 8

Hammer (1990) 8 8 8 8 8 8 8 8

Andrews & Stalick (1994) 8 8 8 8 8 8 8 8

Cooper & Gardner (1993) 8 8 8 8 8 8

Lambert, Emmelhainz & Gardner (1996) 8 8 8 8 8 8

From Push to Pull

At the same time as the “process perspective” (Gripsrud, Jahre, & Persson, 2006) evolved and became “mainstream SCM” concepts like ECR⁶ and Lean Production (Womack, Jones, &

Ross, 1990) provoked a shift from forecast-based production towards make-to-order. At least in principle inventory of finished goods was discarded and techniques like Value Stream Analysis (Hines & Rich, 1997) determined the decoupling point for modularization of products, minimizing the overall inventory cost or balancing it with end-customer lead time.

Conceptually, activities within the supply chain (or rather: network) are perceived as driven

5 Source: Table 2 in Cooper, Lambert, & Pagh (1997), p. 8.

6 Efficient Consumer Response - replenishment program for the retailing industry. For more information, please see e.g. www.ecrnet.org.

by end-customer demand instead of the “pre-SCM” concept of forecasting⁷. These developments caused e.g. Christopher (1998) to propose replacing “Supply Chain” with

“Demand Network”. The proposed term never really caught on…

Five Schools of Thought

The domain continued to evolve causing Bechtel & Jayaram (1997) to describe SCM in a framework of five schools of thought. From the initial work (called the Chain Awareness School) four separate strands of research were identified: the Linkage/Logistics School, the Information School, the Integration School, and The Future.

The Linkage/Logistics School distinguishes itself from the Chain Awareness School by laying out the linkages internally between functional areas and externally between the focal company and supply chain partners. The Information School emphasizes the flow of information between supply chain members, a flow that is bi-directional and not constrained by organizational boundaries. The Integration/Process School focuses on integrating the supply chains into a system defined as a set of processes. In this school, the idea of local (sub) optimization is abandoned as the ideal is the design of the entire system of processes to benefit all participating supply chain members. The goal is to optimize customer satisfaction through design of processes and solutions and subsequently the removal of redundancies.

The last school of thought in the framework, The Future, describes relationships and IT integration as means to further integrating the end users into the system of fulfillment:

“Traditional supply chain relationships capture sales data, and based on these data place orders with their suppliers, manufacturers, or distributors. New technologies such as EDI and ECR enable customer related information to be sent directly to suppliers, distributors, and manufacturers who can use this information to respond instantaneously to changing inventory levels. This represents the beginning of a SCM revolution which will capture and diffuse customer trends and preferences deep into supply chain member companies.”

(Bechtel & Jayaram, 1997, p. 20).

Albeit not explicitly described in the article, one gets the impression that the five schools are described as a chronology⁸. If so, little agreement on this classification is found in more recent review articles as e.g. Tan (2001) categorize the body of knowledge into: 1. Supplier Base Integration/SCM, and 2. Integrated Logistics/SCM and Croom, Romano, & Giannakis (2000c) into: 1. Strategic Management, 2. Logistics, 3. Marketing, 4. Relationships/

partnerships, 5. Best practices, and 6. Organizational behavior. Where Bechtel & Jayaram give the impression of a few competing strands of research pointing towards a coherent body of knowledge, later reviews document the opposite: the research is getting more and more dispersed⁹.

7 Naturally forecasting is still critically important as only very few supply chains have access to “excess inputs on stand-by”.

8 Actually, the model might suggest that the Linkage/Logistics School has a different object (transportation), whereas the Information and Integration/Process Schools describe a more general trend leading towards The Future.

9 In Gibson, Mentzer, & Cook (2005) the multiplicity of definitions of SCM documents the dispersion.

Critical Voices…

This has caused a number of authors (e.g. Larson & Halldorsson, 2002; Fawcett & Magnan, 2002) to questions the relevance and/or existence of SCM - others try to map out the theoretical foundation for SCM (e.g. Halldorsson et al., 2004).¹⁰ In a recent article Giannakis, Croom, & Slack (2004) similarly try to describe the key event leading to and the development of SCM. Using three basic dimensions of supply chain decision making they propose a model (see Figure 2-3) describing the development (leading to and) within SCM. The authors define the three dimensions as:

“Synthesis … describe[s] the strategic decisions related to the structure of supply chains primarily to reflect the importance of the characteristics relating to the construction of supply chains. …

Issues of synergy are concerned with the manner and form of interactions and relationships across supply chains. …

The dimension of synchronization is primarily concerned with the management and coordination of resource flows across supply chains.” (pp. 14-15).

The overall domain of SCM is thereby described by its structural characteristics, the relationships and the efficiency of the overall structure. The legacy from OM is present in the references to Operational Research, Inventory Theory, Manufacturing Theory, and The Transformation Model. On the relational side references are made to Open Systems Theory, Social Network Theory, and The Interaction Model (IMP). Claiming a multi-disciplinary and multi-methodological foundation for SCM seems almost an understatement.

Figure 2-3: Chronology of influences on SCM¹¹

Game theory

Logistics Operational

research Coase theorem

1940 1950

Contingency theories

Inventory theory Fuzzy logic

1960

Manufacturing theory

Transformation model Social networks

theories

1970

Agency theory

Commercial chain Transaction

cost analysis

1980

Interaction model Value chain Embeddedness

1990

e-commerce Supply

chain integration

Virtual organizations

2000 Post-w

era ar

Compute rization era

Gloerabalization

Internet Syn era

thesis

Synergy Synchronization

(Open) systems

theory Portfolio

models

Industrial

dynamics Focus

Chaos theory

Lean supply

Resource based theory JIT

10 In a recent article Gammelgaard (2004) calls for more methodological diversification in the research within SCM. She claims the Analytical and Systems approaches in Arbnor & Bjerke (1997) framework have been dominant within the domain, and advocates the use of the Actor approach as well.

11 Source: Figure 1.3 in Giannakis, Croom, & Slack (2004), p. 16.

Concerns on SCM Theory

Also in terms of theory concerns are raised. In Burgess, Singh, & Koroglu (Burgess, Singh,

& Koroglu, 2006) an extensive literature review on SCM is reported, and the authors comment:

“For the field of SCM, the extent to which theories have been developed appears to be slight. The development of SCM appears to have been largely practitioner-led, with theory following. … Of all the articles that adopted theoretical perspectives, none proposed an original SCM theory.” (p. 711), and

“It is possible that the current state of theory development in the field could be preventing its evolution towards a more mature status.” (p. 717).

These concerns are supported and extended in Storey et al. (2006):

“If supply chain management is to mature as a discipline there needs to be further progress in clarifying its domain, its central problems, its core components, its theories and its theoretical map.” (p. 755).

Concepts for Improving Business-as-Usual

In the midst of all this diffusion a number of concepts seem to survive over time: Just-in-Time (JIT) (e.g. Schwarz & Weng, 2000), Vendor Managed Inventory (VMI) (e.g. Blatherwick, 1999), and ECR (e.g. Sabath, 1998). Certain principles likewise seem to receive continued attention: Supply Chain Integration (e.g. Bagchi & Skjøtt-Larsen, 2002b; Langabeer &

Seifert, 2003; Lee, 2000), Postponement (e.g. Pagh & Cooper, 1998), Mass Customization (e.g. Gilmore & Pine, 1997), and Leanness/Agility/Leagility (e.g. Mason-Jones, Naylor, &

Towill, 2000b). Albeit quite different, they all focus on the same: increasing the efficiency of business-as-usual.

In document Risk Management in the Supply Chain (Sider 40-47)