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LITERATURE REVIEW
2.1 Introduction
This chapter explains, categories and synthesizes literature pertaining to the
Supply Chain Management (SCM). The identify antecedents and consequences of
SCM, and we propose the boundaries of SCM in terms of supply chain orientation
and supply chain integration. We also provide a comprehensive elaboration of
different supply chain practices such as, flexible supply chain, lean supply chain and
agile supply chain. Finally, we conclude this chapter with identifying different
barriers to effective supply chain management and also benefits and competitive
advantages that can be derived from an effective supply chain management.
2.2 The Conceptualization of Supply Chain, Supply Chain Orientation and
Supply Chain Management
Throughout the 1980s and 1990s, many American firms tried to integrate their
logistics management with the idea that close collaboration between the functions
involved in logistics activities can produce high levels of service and performance
while reducing the total costs and higher productivity (Oliver and Webber, 1982).
The supply Chain Management (SCM) concept has evolved during this period
of time and is now prevailing in both academia and practice. Lambert et al. (1998)
observed that the term SCM was originally introduced by consultants in the early
1980s, since the early 1990s, academics have attempted to give structure to SCM.
Despite the short history of this field, the literature on SCM is growing rapidly
(Larsen and Rogers, 1998). Shapiro (2001) points out that, SCM incorporates
concepts from several management disciplines such as strategy formation and the
theory of the firm, logistics, production, inventory management, management
accounting, demand forecasting, marketing management and operations research.
Since then, researchers from numerous disciplines have incorporated supply
chain thinking into their research programs making it a multi-disciplinary field
(Lancioni et al., 2001) as for example Strategic Management (Bechtel and Jayaram,
1997; Christopher and Ryals, 1999; Ketchen and Giunipero, 2004; Rodrigues et al.,
2004; Tan et al., 2002), Purchasing and Supply Management (Cavinato and
17
Kauffmann, 1999; Jahns, 2005; Kaufmann, 2001; Leenders et al., 1994; Stuart, 1997),
Marketing (Christopher, 2005; Min and Mentzer, 2004; Svensson, 2002, 2003), Interorganizational Relationships Research (Golicic and Mentzer, 2005; Skjoett-Larsen,
2003; Walter et al., 2007), Organization Theory (Kim, 2007) and Operation
Management (Khouja, 2003)- to name a few only.
The definitions of SCM, however, differ by different authors, Tyndall et al.
(1998) defined logistics and SCM as the art of the managing the flow of materials and
products from source to user. Ellram and Cooper (1990) defined supply chain
management as a management philosophy. LaLonde (1997) defined it as a
management
process.
Even
Thus, the nature of a supply chain is inclusive so that the membership is not
limited to a supplier, a manufacturer and a distributor, but open to any firm that
performs various services, including a third party financial providers, a third party
logistics (3PL) provider, a market research firm and so on (Mentzer et al., 2001). A
supply chain is distinguished from a partnership by the fact that a partnership consists
of a dyadic relationship between the two firms, whereas a supply chain includes at
least three firms (Soonhong, 2001). Defined in a more holistic fashion, a supply chain
is the network of facilities and activities that perform the functions of products
development, procurement of material from the vendors, the movement of materials
between facilities, the manufacturing of products, the distribution of goods to
customers,
and
the
after-market
support
for
sustainment
(Mabert
and
Venkataramanan, 1998). This definition is more in line with the value chain view
which includes all the value-adding processes required to deliver the product or
services to the end customer or market (Davis, 1993; Porter, 1985). According to
Christopher (2005), the term supply chain may have not initially meant value chain,
but continued outsourcing and vertical disintegration has led the value chains to be
extended beyond the boundaries of the firm and hence the supply chain is becoming
19
the value chain. Mentzer et al. (2001) further classified chains as either a basic
supply chain, and extended supply chain, or an ultimate supply chain. The
detailed definition of supply chain itself and each type of supply chain by Mentzer et
al. are:
1. A basic supply chain consists of a company, an immediate supplier and an
immediate customer directly linked by one or more of the upstream and
downstream flows of products, services, finance and information.
2. An extended supply chain includes suppliers of the immediate supplier and
customers of the immediate customers, all linked by one or more of the upstream
and downstream flows of products, services, finance and information.
3. An ultimate supply chain includes all the companies involved in all the upstream
and downstream flows of products, services, finances and information from the
initial supplier to the ultimate customers.
Mentzer et al. (2001) argued that supply chains exist whether they are
managed or not. In other words, there exists a definite demarcation between supply
chains as phenomena that exist in business and the management of those supply
chains: the former is simply something that exists in distribution channels, while the
latter takes overt management efforts by the organizations within the supply chain
(Mentzer et al., 2001). Therefore, supply chains are autogenetic in nature, whereas
management of supply chains is artificially organized with collective efforts of supply
chain members. Cooper et al. (1997) argued that organizational relationships tie firms
to each other and may tie their success to the supply chain as a whole. In this context,
a supply chain as a whole may have its own identity and function like an independent
firm (Soonhong, 2001). What the authors (Christopher, 1992; Cooper et al., 1997)
meant is managed supply chains.
This is so because without the recognition and management of supply chains
by its members, ompanies cannot compete by supply chains. Cooper and Ellram
(1993) suggested that supply chain management is a form between fully vertically
integrated system and those where each firm in the channel operates completely
independently. Similarly, Gentry and David (1996) proposed that a strategic
partnership between any two firms, whether it is between buyer and seller or
manufacturer and carrier could be a segment of an extended supply chain. In other
words, supply chain is a set of firms among which cooperation may take place.
20
Source : Mentzer
M
et all. (2001).
21
22
In summary, it is proposed that a SCO within a firm has the following characteristics:
1. A systems approach to viewing the channel as a whole, and to managing the total
flow of goods inventory from the supplier to the ultimate customers.
2. Cooperative efforts to synchronize and converge intrafirm and interfirm
operational and strategic capabilities into a unified whole, and,
3. A customer focuses to create unique and individualized sources of customer value.
23
chain. In the other words, SCM is the implementation of a supply chain orientation
across supplier and customers. Companies implementing SCM must first have a
supply chain orientation. Finally, a SCO is a management philosophy and SCM is the
sum total of all the overt management actions undertaken to realize that philosophy.
This brings us closer to understanding and defining supply chain management, which
will be explained in the next subsequent section.
Halldorsson et al. (2008), for example, noted that disagreement and confusion
about the real meaning of SCM currently exists in the contemporary literature, while
Burgess et al. (2006), state that SCM continues to be largely eclectic with little
consensus on its conceptualization. Other authors have also remarked these
definitions either implicitly or explicitly (Frohlich and Westbrook, 2001; Svensson,
2003; Giannakis and Croon, 2004). Thus, different approaches to the study of SCM
currently exists with some authors placing emphasis on SCM as an academic
discipline with different, researchable subtopics (Burgess et al., 2006; Harland et al.,
2006) and others suggesting that SCM complementarily also can be considered a
management implement suitable for implementation in companies that experience
problems related to the management of their supply chain (Bechtel and Jayaram,
1997; Fawcett and Magnen , 2002; Lambert et al., 2005, Kotzab et al., 2006).
24
Generally, different researchers are agreed that, a firm or a set of firms with a
supply chain orientation showed act or behave consistently with the integrative
philosophy of managing the supply chain not only within each firm but also within the
supply chain by multiple firms. In other words, managing a supply chain requires each
organization in a supply chain to be supply chain oriented and, at the same time,
perform a specific set of managerial actions within a supply chain in a collaborative
manner. This set of activities is a coordinated effort called supply chain management
(SCM) between the supply chain partners, such as suppliers, carriers and manufacturers,
to dynamically respond to the needs of the end customer (Greene, 1991).
SCM is at the strategic level, because it helps firm and its partners in a supply
chain to accomplish strategic goals such as improving competitiveness and overall
performance of the firm and the supply chain as a whole through creating customers
value. In this context, Bowersox and Closs (1996) argued that to be fully effective in
todays competitive environment, firms must expand their integrated behavior to
incorporate customers and suppliers. This extension of integrated behaviors, through
external integration, is referred to as supply chain management. Put together, Mentzer
et al., (2001) define supply chain management as the systemic, strategic coordination
of the traditional business functions and the tactics across these business functions
within the supply chain, for the purpose of improving the long term performance of
the individual companies and the supply chain as a whole.
Some scholars (e.g. Christopher, 1998; Heikila, 2002) also suggest that
supply chain management should really be termed demand chain management to
reflect the fact that the chain is driven by the market place to satisfy the needs of the
end-users. The Council of Supply Chain Management Professionals (CSCMP) (2004),
formerly the Council of Logistics Management (CLM), a leading professional
organization promoting SCM practices education and development, defines SCM as:
SCM encompasses the planning and management of all activities involved in
sourcing and procurement, conversion, and all logistics management activities,
including coordination and collaboration with suppliers, intermediaries, third-party
service providers and customers.( Thus the supply chain encompasses all activities
involved in the production and delivery of a final product or service, from the
suppliers supplier to the customers customer). In essence, supply chain management
integrates supply and demand management within and across companies
(www.cscmp.org). CSCMP emphasizes that SCM encompasses the management of
supply and demand, sourcing of raw materials and parts, manufacturing and assembly,
warehousing and inventory tracking, order entry and order management, and
distribution and delivery to the customers. Some other authors have defined SCM.
New and Payne (1995) and Simchi-Levi et al. (2000) define SCM as the integration
of key business processes among a network of inter-dependent suppliers,
manufacturers, distribution centers, and retailers in order to improve the flow of
goods, services and information from original suppliers to final customers, with the
objectives of reducing system-wide costs while maintaining required service levels
(as cited in Stapleton et al., 2006).
The Global Supply Chain Forum (GSCF) defines SCM as the integration of
key business processes from end user through original suppliers, that provides
products, services and information that adds value for customers and other
stakeholders (as cited in Lambert et al., 1998). Although many definitions exist for
SCM in the literature, there is no single basic definition of SCM that is universally
used. Therefore, the various definitions are summarized in Table 2.1
26
Source
All the activities involved in delivering a product from raw Lummus and Vokurka,
material through to the customer including sourcing raw 1999.
materials and parts, manufacturing and assembly,
warehousing and inventory tracking, order entry and order
management, distribution across all channels, delivery to
the customer, and the information system necessary to
monitor all of these activities.
SCM is a concept concerned with activities to plan, Bowersox et al., 1999.
implement and control the efficient and effective sourcing,
manufacturing and delivering process for products, services
and related information from the point of material origin to
the point of ultimate consumption for the purpose of
conforming the end-customer requirements.
The SCM encompasses all activities associated with the Handfield and Nichols,
flow and transformation of goods from the raw materials 1999.
stage, through to the end user, as well as the associated
information flows, material and information flow both up
and down the supply chain.
SCM is a set of approaches utilized to efficiently integrate Simchi-Levi et al.,
suppliers, manufacturers, warehouses and stores, so that 2000.
merchandise is produced and distributed at the right
quantities, to the right locations, to the right time, in order
to minimize system-wide costs while satisfying service
level requirements.
Managing supply chain flows and assets to maximize Chopra and Meindle,
supply chain surplus.
2001.
A philosophy of management that involves the management Ho et al., 2002.
and integration of a set of selected key business processes
from end user through original suppliers that provides
products, service and information that add value for
customers and other stakeholders through the collaborative
efforts of supply chain members.
Network of connected and inter-dependent organizations Aitken in Christopher,
mutually and co-operatively working together to control, 2005.
management and improve the flow of materials and
information from suppliers to end users.
SCM encompasses the planning and management of all CSCMP, 2007.
activities involved in sourcing and procurement, conversion
and all logistics management activities. Importantly, it also
includes coordination and collaboration with channel
partners, which can be suppliers, intermediaries, third-party
service providers and customers.
28
From these definitions, nine key elements of SCM can be derived. Of these,
five are considered hard elements in the sense that they are tangible. The other four
are considered to be soft, meaning that they are intangible in nature. The hard key
elements are:
1. Product and its flow (including its components, parts and materials ) (Chopra and
Meindle, 2001; Christopher, 1998; Ho et al., 2002; Kranze, 1996; LaLonde, 1998;
Lambert et al., 1998; Larsen and Rogers, 1998; Lummus and Vokurka, 1999;
Mebert and Venkataramanan, 1998; Quinn, 1999; Simchi-Levi et al., 2000; Stein
and Voehl, 1998).
2. Suppliers and suppliers of suppliers (Chopra and Meindl, 2001; Christopher,
1998; Ho et al., 2002; Kranze, 1996; LaLonde, 1998; Lambert et al., 1998, Larsen
and Rogers, 1998; Lummus and Vokurka, 1999; Mebert and Venkataramanan,
1998; Quinn, 1999; Sinmchi-Levi et al., 2000; Stein and Voehl, 1998).
3. Firms (Chopra and Meindl, 2001; Christopher, 1998; Ho et al., 2002; Kranze,
1996; LaLonde, 1998; Lambert et al., 1998; Larsen and Rogers, 1998; Lummus
and Vokurka, 1999; Mebert and Venkataramanan, 1998; Monczka and Morgan,
1997, Quinn, 1999, Simchi-Levi et al., 2000; Stein and Voehl, 1998).
4. Customers and Customers of Customers (Chopra and Meindle, 2001; Christopher,
1998; Ho et al., 2002; Kranze, 1996; LaLonde, 1998; Lambert et al., 1998; Larsen
and Rogers, 1998; Lummus and Vokurka, 1999; Mebert and Venkataramanan,
1998; Monczka and Morgan, 19976; Quinn 1999; Sinchi-Levi et al., 2000; Stein
and Voehl, 1998), and
5. Information and its flow (Chopra and Meindle, 2001; Ho et al., 2002; LaLonde,
1998; Lambert et al., 1998; Lummus and Vokurka, 1999).
The fourth soft key element is not explicitly stated n the definitions in Table 2.1.
Lambert et al. (1997) also argue that supply chain management consists of three
separate elements, network structures, business processes and management
components. Briefly, network structures concern the arrangement of the members of the
supply chain and their relations, business processes concern activities and flows in the
supply chain, and management components concern the management of the other two.
Furthermore, Lambert et al. (1997) suggest three primary aspects of a supply
chain management structure:
1. The members of the supply chain;
2. The structural dimensions of the network; and
3. The different types of process links across the supply chain.
The first aspect represents companies working in the same supply chain. The
second concerns the structure dimensions of the supply chain, which are horizontal
structure, vertical structure and horizontal position of the focal company. The final
aspect concerns different types of process links across the supply chain, describing the
degree of integration between members across that specific process link. Second, we
have the process element. Lambert et al. (1997) suggest that this element
comprehends eight different processes that are essential to supply chain management:
customer relationship management, customer service management, demand
management, order fulfillment, manufacturing flow management, procurement,
product development and commercialization and return. However, Davenport (1993)
defines processes as a structured and measured set of activities designed to produce a
specific output and value for a particular customer.
Lee (2000) suggests that a supply chain should be described using the three
flows of products, information and finance. Stock and Lambert (2001) argue that the
management components of SCM are common, critical and fundamental across all
business processes, members and relationships.
The management components are divided into two separate categories where
the first are physical and technical components and the second are managerial and
behavioral components. Being more visible, tangible, measurable and easy to change
components characterizes the first group and the second group is characterized by
being the opposite. One can say that the managerial and behavioral components
30
define the organizational behavior and influence how the physical and technical
management components can be implemented. These elements and sub elements of
SCM can be seen in Table 2.2.
Table 2.2 : Detail elements of SCM
Elements of supply chain management
Description
Structure
Members of supply chain
Process
Flow
Product flow
Information flow
Monetary flow
Operational activities
Management Component
Physical and technical
Planning and
control methods
Measurement , performance
metrics, key performance
indicator (KPI), etc
Organizational
structure
Responsibility (
ownership, liability
and operations)
Management
methods
Power and
leadership structure
31
Cooper et al. (1997) define a model of SCM, which includes key supply chain
business processes, and flows of information and products over a supply chain
network structure. This model of SCM highlights six key processes within a firm:
purchasing, logistics, marketing and sales, production, research and development and
finance. SCM processes are integrated within several tier suppliers and several
customers or end customer through the key supply chain processes of customer
relationship management, demand management, procurement and returns, among
others (Cooper et al., 1997). This model of SCM is shown in Figure 2.2.
Figure 2.2 : Integrating and Managing Business Processes Across the Supply Chain
32
The supply chain management structure based on the SCOR model is shown
in Figure 2.3 (adopted from SCC, 2008). SCOR is designed to be a standard language
that helps management focus on both intra and inter-company SCs through effective
communication among SC partners. It is used to describe, measure and evaluate SC
configurations in order to achieve competitive advantage. SCOR contains three levels
of process detail that help integrate a SC from suppliers supplier to customers
customer.
33
34
The SCOR model is deployed in three levels of process details (SCC, 2008)
Level one, the top level, is related to process types and defines the scope and
contents of the model, implying the definition of the core management processes
for the decision areas Plan, Source, Make, Deliver and Return. At this level is the
set of competition performance targets.
Level two, the configuration level, is related to process categories and provides a
set of core process categories. This level describes the characteristics linked to the
process types deployed within the core processes previously defined in level one.
Also, this level defines process categories because of the relationship between a
core management process and a process type.
Level three, the process element level, is related to the enterprise fine tuning. It
defined the ability of a company to compete successfully in a specific market.
This level consist of process element definitions, process element information,
input, and output, process performance metrics, best practices, systems
capabilities to support best practices and general system and tools. These levels
have been shown in figure 2.4.
Level four, is the implementation of sell practices. This level is not included in the
model scope. (Companies implement supply chain management practices that are
unique to their organizations of this level. Level four and lower defines specific
practices to achieve competitive advantage and to adapt to changing business
conditions).
It is important to highlight that the SCOR model does not provide a unique
solution for the improvement of the supply chain management. The SCOR model
does not offer a step-by-step procedure to improve the supply chain management and
must be supported by efficient systems and information technology, not defined by
the model. In spite of SCOR is widely accepted by several companies in all over the
world.
35
oriented firms should build and maintain some specific behavioral antecedents to
create benefits as consequences of SCM through effective functional and integrated
practices with their supply chain partners. Therefore, we can examine the antecedents,
SCM practices and consequences of SCM at the strategic level (see Figure 2.5).
Supply Chain
Orientation
Consequences
Systemic View
Strategic View
Single Company
Antecedents
Similar Customer
Willingness to address:
Trust
Commitment
Interdependence
Organizational
Vision
Key Processes
Leader
Improved Customer
Value and Satisfaction
Profitability(lower
Focus
Revenue)
Integration of Key
Processes
Differential
Advantage
Long- Term
Relationships
Compatibility
Three or more
contiguous companies
with a SCO
Information Sharing
Inter-functional
Coordination
37
First, Morgan and Hung (1994) proposed that cooperation arises directly from
both relationship trust and commitment. Moorman et al. (1993) define trust as a
willingness to rely on an exchange partner in whom one has confidence. Trust among
people is interpersonal rather than private, and this plays a role in fulfilling
commitments (Kramer and Tyler, 1996). Moorman et al. (1992) determined that user
trust significantly affects user commitment in marketing research and that the effects
of marketing relationships have grown. Consistently, trust has a positive influence on
commitment, and improves the relationship between retail buyers and vendors
(Ganesan, 1994; Narayandas and Rangan, 2004). Narayandas and Rangan (2004)
have posited that interpersonal trust in a buyerseller relationship facilitates the
development of inter organizational commitment in a mature industrial market. Gulati
and Sytch (2007) determined the interpersonal trust effects not only inter
organizational commitment, but also performance. Trust produces mutual
expectations (Bachmann, 2003). Due to the elements of risks in supply chain, trust
may be substituted by Control (Nooteboom, 2003). It was emphasized that trust has
significant role to overcome mutual difficulties such as power, conflict, lower
profitability, and so on. Thus, it is proposed that trust has an effect on sharing risks
and rewards (Dwyer et al., 1987). Zand (1972) stressed that the relationship of trust
and commitment is highly correlated and pre-required with the solution of problems.
38
stated that commitment and trust are key because they encourage markets to (1)
work at preserving relationship investments by cooperating with exchange partners,
(2) resist attractive short-term alternatives in favor of the expected long-term benefits
of staying with existing partners, and (3) view potentially high-risk actions as being
prudent because of the belief that their partners will not act opportunistically.
Second, interdependence of a firm on the partner refers to the firms need to
maintain a relationship with the partner to achieve its goals (Frazier, 1983).
Acknowledged interdependence is a prime force in the development of supply chain
solidarity (Bowersox and Closs, 1996). In addition, this interdependence is what
motives willingness to negotiate functional transfer, share key information and
participate in joint operational planning (Bowersox and Closs, 1996). Ganesan (1994)
proposed that dependence of a firm on another firm is positively related to the firms
long-term relationship orientation. Authors (Stem and Reve, 1980; Anderson and
Weitz, 1989; Buchanan, 1992; Ganesan, 1994; Kumar et al., 1995) acknowledged that
when firms are dependent on each other the relationship becomes more stable and
effective. Johnson et al. (1989) state that, the combination of positive goals and
rewards interdependence do, in fact, increase individual achievement and group
productivity in the individual context. By way of contrast, economic perspective
theory contends that interdependence is inescapably important when organizations
must cope with uncertainty (Subramanian and Watson, 2006).
In terms of organizational level, interdependence is defined as resource
dependencies among partners for the achievement of mutually beneficial goals (Mohr
and Spekman, 1994). However, resource dependence implies a loss of autonomy and
gives power to another party (Dyer, 1997). Therefore, interdependence is associated
with the notions of power and control (Gulati and Sytch, 2007; Oliver, 1990). Bartlett
and Ghoshal (1989) explained that interdependence involves the sharing of resources,
ideas and opportunities, but nonetheless overlooked the issue of how independence
between companies influences partners SCM. Dyer (1997) noted that mutual
investment or dependence regarding specific assets expands opportunities to improve
performance in the manufacturer-supplier relationship. He also contended that coinvestment builds high levels of relational trust. Gulati and Sytch (2007) also
mentioned that a high level of joint dependence generates conditions that develop and
maintain trust and commitment owing to opportunistic behavioral costs, differential
power and asymmetric control.
39
ensures a close match between the suppliers specification and requirements, this is
referred to as commitment. Commitment results in the fulfillment of partners
equitability (Ring and Van de Ven, 1992). Thus, there exist compelling reasons for
the linkage between strategic fit and trust and commitment. Ross (1998) confirmed
that, the creation and communication of a market-winning competitive SCM vision
shared not just by individual firms but also by the whole supply chain is essential
before any SCM project can begin. Visioning provides firms with specific goals and
strategies concerning how they plan to identify and realize the opportunities they
expect to find in the marketplace (Ross, 1998).
Finally, different authors (Hambrick and Mason, 1984; Webester, 1988; Tosti
and Jackson, 1994; Flynn et al., 1995; Trent and Monczka, 1999, Harison and New,
2002) suggested that top management plays a critical role in shaping an
organizations values and orientation or direction. Day and Lord (1988) found that top
level managers have a substantial impact on organizational performance. Lambert et
al. (1998) also proposed that top management support, leadership and commitment to
change as an important antecedent to the implementation of SCM. This is also
supported by a recently conducted survey study (Larson et al., 2007) among senior
members of the Council of Supply Chain Management Professionals (CSCMP),
where top management support is identified as the most important facilitator for
implementation of SCM. Some researchers also have emphasized that supply chain
needs leader as much as individual organizations (Bowersox and Closs, 1996). Ellram
and Cooper (1990) propose that a supply chain leader is like a channel captain and
plays a key role in coordinating and overseeing the whole supply chain. The success
of supply chain management is directly related to the presence of constructive
leadership capable of simulating cooperative behavior between participating firms
(Schmitz et al., 1994). In the same context, Loforte (1993) contends that the lack of
top management support is an important barrier to SCM.
In summary, a supply chain oriented organization should build, maintain and
enhance the elements in its supply chain relationships as stated above. Thus, a supply
chain orientation, as a business philosophy, within a firm is implemented by these
elements toward the interfirm relationships in the supply chain. In other word,
management of the supply chain is accomplished only when several companies in line
in the supply chain have that orientation and move toward implementing the
management philosophy of supply chain orientation.
41
Integrated behavior.
Integration of processes.
42
First, Bowersox and Closs (1996) argued that to be fully effective in todays
competitive environment, firms must expand their integrated behavior to incorporate
customers and suppliers. In this context, the philosophy of SCM turns into the
implementation of SCM as a set of activities that carries out the philosophy. This set
of activities is a coordinated effort called SCM between the supply chain partners,
such as suppliers, carriers and manufacturers, to respond dynamically to the need of
the end customers (Greene, 1991).
Third, effective SCM also requires mutually sharing channel risks and
rewards that yields a competitive advantage (Ellram and Cooper, 1990). Risk and
reward sharing should happen over the long term (Cooper, Ellram, et al., 1997). Risk
and reward sharing is important for long-term focus and cooperation among the
supply chain members (Cooper, Lambertm, et la., 1997). Rao et al. (2006) noted that
integrated relationship between supply chain members requires sharing of risks,
rewards and continuous improvement assessment.
problems and to achieve the desired goals (Huxham, 1996; Corbett et al., 1999; Barrat
and Oliveira, 2001; Wagner et al., 2002). According to Copper, Ellram et al. (1997)
cooperation is not limited to the needs of the current transaction and happens at
several management levels (e.g., both top and operational managers), involving cross
functional coordination across the channel, members. As Bailey and Francis (2007)
determined that cooperative practices and high level of information transparency help
a firm to deliver superior order replenishment performance between supply chain
members.
Fifth, LaLonde and Masters (1994) proposed that a supply chain succeeds if
all the members of the supply chain have the same goal and the same focus of serving
customers. Establishing the same goal and the same focus among supply chain
members is a form of policy integration. Lassar and Zinn (1995) suggest that
successful relationships aim to integrate channel policy to avoid redundancy and
overlap while seeking a level of cooperation that allows participants to be more
effective at lower cost levels.
(1996) argue that it is not usual that all the primary activities in a value chain-inbound
and outbound logistics, operations, marketing, sales and service-are performed by any
one firm to maximize customers value. Thus, forming strategic alliances with
channel partners such as suppliers, customers, or intermediaries (transportation and/or
warehousing services) provides competitive advantage through creating customer
value (Langley and Holcomb, 1992). But the motive behind all of these activities and
formation of effective supply chain management is to some competitive consequences
or can be called benefits of supply chain management which will all be explained in
section 2.9.
rational behind all these terms appears to be that companies cannot successfully
compete by themselves and therefore seek establishment of arrangements with other
entities in the supply chain. Term like integration, collaboration, cooperation and
coordination are complementary to each other in a supply chain as they consist of
similar elements (Arishinder and Deshmukh, 2008).The term Supply Chain
Integration (SCI) will be used in the remainder sections.
Integration is such a broad term that it can be used to describe a wide variety
of linkages between departments and firms. For example, internally or externally,
firms can integrate different elements of their operations. These elements may be
tangible (such as product flows, measurement, etc) or intangible (such as relationships
information, etc). The Global Supply Chain Forum (GSCF) defines SCM as the
integration of key business processes from end user through original suppliers that
provides products, services, and information that add value for customer and other
stakeholders(Global Supply Chain Forum, www.fisher.osu.edu/logistics/forum).
46
Bowersox et al. (1999) identified that both internal and external integrations
are important, which external integration itself includes customer and supplier
integration.
differentiate the firm in terms of cost leadership, product and service quality,
customization, lead times, flexibility, and agility and other competitive strategies. SCI
is also necessary for creating flexibility and agility in the supply chain (Christopher
and Towill, 2001), because integrating product development plans and product
designs with the suppliers lead to reduced investments and shorter cycle time (Morgan
and Monczka, 1996; Ragatz et al., 2002). Integrating with customers gives supply
chain members the knowledge of responses to meet the demand (Croson and
Donohue, 2003). However, this integration must be followed by coordination,
collaboration and alignment of the objectives along the supply chain for the supply
chain to be able to reap the benefits of integration and obtain competitive advantage
against other supply chains (Lee, 2000; Lee, 2004; Narayanan and Raman, 2004).
Relationship
Dimension
Cooperation
level
Orientation
Target
Buyer-Seller Relationship
SCI
Dyadic relationship
Triadic relationship
Relationship
complexity
Scope
Relatively simple
External process focused
Extent
Narasimhan (1997) and Stevens (1989) presented that the integration process
of SCM starting from functional integration to internal integration and finally to
external integration. At the functional integration stage, a firm being to integrate its
fragmented operations such as function segregation, incompatible control system, etc,
and emphasized cost reduction rather than performance improvement. At the stage of
internal integration, an individual firm has a full cross functional visibility and
emphasizes efficiency and electronic linkage across the firm. Mentzer et al. (2001)
identified the nature of internal firms members integration that should be managed
and controlled collaboratively with considering common goals, top management
support, trust and commitment as antecedents to improve the long-term performance
of the individual firm and the supply chain as a whole (see figure 2.6).
49
Antecedents of
Inter-function
Coordination
Nature of
Inter-function
Coordination
Common goals
Consequences of
Inter-function
Coordination
Competitive
Top management
Cooperative
Arrangement
Support
Advantage
Managerial
Control
Trust
Profitability
Standardization
Commitment
Functional
Expertise
Organizational structure
Source
51
In the current literature, there is evidence that companies are moving away
from arms length relationship to the strategic partnership in their supply chain
integration with customers, where Thomke and Hippel (2002) suggest that the
customers can be a source of innovation for a company in long term partnership. New
business model such as built to order have emerged, where the customers initiatives
is paramount (Holweg and Pil, 2001). Customer Relationship Management (CRM)
has become a growing topic in marketing relationship and information technology
(Winer, 2001).
52
Share production
scheduling data
capacity
Electronic information exchange (EDI, Share saving from reduced total inventory
internet)
cost
Exchange of real time information
Service.
Source: Adopted from Frohlich and Westbrook, 2001; Johnston et al., 2004; Narasimhan and
Kim, 2002; Simatatupang and Sridharan, 2005; Min et al., 2005.
53
In this new scenario, significant interest has been shown in recent years in the
flexible, lean and agile manufacturing system in a supply chain (Womack et a.,
1990; Zhang et al., 2003; Storey et al., 2005; Narasimhan et a., 2006). A review of
the SC and Operation Management (OM) literature indicates the inconsistency and
ambiguity regarding to use of terms flexibility, leanness and agility. Therefore, it is
not clear whether these terms are synonyms or distinct concepts. Flexibility is related
to adaptability and versatility; while agility is related to nimbleness, quickness and
dexterity. Therefore flexibility and agility are different conceptually (Kid, 2000).
54
55
Gerwin (1987).
The quickness and ease with which plants can respond to Cox (1989).
changes in market conditions.
The adaptability of a system to a wide range of possible Sethi and Sethi
environments that it may encounter.
(1990).
The ability of manufacturing system to generate high net Ramesesh and
revenues consistently across all conceivable states of the Maliyakal (1991)
nature in which it may be called to function.
The ability to cope with changing circumstances or instability Gupta and Somers
caused by the environment.
(1992).
The ability of the system to quickly adjust to any change in Nagarur (1992).
relevant factors like product, process, loads, and machine
failure.
A response to external uncertainty
Newman et al.
(1993).
The ability of a manufacturing system to change states across Upton (1994, 1995).
an increasing range of volume and/or variety, while adhering
to stringent time and cost metrics.
The ability to respond quickly to changing customer needs at Small and Chen
reasonable price.
(1997).
The capability of an organization to move from one task to Vokurka and
another quickly and as a routine procedure.
Fliedner (1998).
The ability companies to respond to a variety of customer Backhouse and
requirements which exist within defined constraints.
Burns (1999).
Ability of manufacturing system to change states across an Das (2001).
increasing range of volume and/or variety, while adhering to
stringent time and cost metrics.
The organization ability to meet an increasing variety of Zhang et al. (2003).
customer expectations without excessive cost, time,
organizational disruptions or performance losses.
A generic ability to adapt to internal and/or external Holweg (2005).
influences.
Newman et al., (1993) characterize flexibility as a competitive response to
environmental uncertainty due to its accommodating nature. Zhang et al., (2002)
define flexibility as the firms ability to meet an increasing variety of customer
expectations while keeping costs, delays, organizational disruptions and performances
losses at or near zero. Vokurka and Fliedner (1998) conceptualize flexibility as the
56
Scope captures the flexibility response in terms of the full range and diversity
of options, while achievability captures the short-and long-term penalties that the
organization incurs involving the flexible response. Zhang et al., (2003) maintained
that SC flexibility consists of SC competencies and SC capabilities. SC competencies
include machine flexibility, labor flexibility, material handling flexibility, routing
flexibility, while SC capabilities include volume, mix flexibility and logistics
flexibility. For the purpose of this research, five dimensions of flexibility are believed
to have an impact on supply chain performance.
These five dimensions are: volume flexibility, mix flexibility, labor flexibility,
market flexibility and logistics flexibility. Volume flexibility has been defined as the
extent of change and the degree of fluctuation in aggregate output level which the
system can accommodate without incurring high transition penalties or large changes
in performance outcomes (Koste and Malhotra, 1999). Similarly Zhang et al., (2003)
defined volume flexibility as the ability of the organization to operate at various batch
sizes and/or at different production output levels economically and effectively.
Mix flexibility has been defined as the number and variety (heterogeneity) of
products which can be produced without incurring high transition penalties or large
changes in performance outcomes (Koste and Malhotra, 1999) and as the ability of the
firm to produce different combinations of products economically and effectively
given certain capacity (Zhang et al., 2002). These two supports the nation of agility
and responsiveness in the market demand in a global and competitive environment
may require different volume and range of products and different varieties in order to
57
satisfy demands and customer needs at various markets throughout the world. Koste
and Malhotra (1999) defined labor flexibility as the number and heterogeneity
(variety) of tasks/operations a worker can execute without incurring high transition
penalties or large changes in performance outcomes. In a same way labor flexibility
has also been defined as the ability of the workforce to perform a broad range of
manufacturing tasks economically and effectively (Zhang et al., 2003). Market
flexibility is the ease with which the supply chain system can adapt to a changing
market environment. This supports the importance of a market orientation in a supply
chain management. Logistics flexibility is the ability of the firm to effectively and
rapidly respond to customer requirements for deliver, support and service (Zhang, et
al., 2002; Zhang et al., 2005). So logistics flexibility takes care of a fluent material
flow through manufacturing and a rapidly delivery to the customers. Logistics
flexibility itself has four components: Physical supply flexibility and purchasing
flexibility, which are the competences, and physical distribution flexibility and
demand management flexibility, which are the customer facing capabilities.
58
In the context of SCM, it has been argued that lean concepts work well where
demand is relatively stable and hence predictable and where variety is low.
Conversely, in those contexts where demand is volatile and the customer requirement
for variety is high, a much higher level of agility is required (Christopher, 2000). Lean
supply chain has several benefits such as; inventory reduction (raw material, work in
process and finished goods), reduced cycle times and reduced manufacturing costs
among others (Womack and Jones, 1996; Womack et al., 1990). Many firms have
reduced their levels of inventory to less than a day. For example Dell computer has
reduced its inventory levels to just 3 to 5 hours (Byrd and Davidson, 2003). Cycle
time reduction is a way to meet the goal of waste reduction by eliminating or
minimizing the waste of time. It is helpful to think of cycle time as the elapsed time
between customer inquiry and the customer need being met (MasonJones and
Towill, 1999).
Lead time compression is an essential characteristic of both lean and agile
system (MasonJones et al., 2000; Naylor et al., 1999). Lean systems, as stated
above, pursue the elimination of all forms of waste, of which time is one; whereas
agile systems strive to reduce lead time in order to be more responsive to customer
needs (MasonJones et al., 2000; Naylor et al., 1999). Thus time reduction is
sufficient for achieving lean but is only one condition for achieving agility. Therefore
we can infer that a lean supply chain, especially from the stand point of time
compression, is a suitable antecedent to an agile supply chain.
Womack and Jones (1996) provide five lean principles: Value, the value
stream, flow, pull and perfection, described in the following way:
1. Value is defined by the ultimate customer;
2. The value stream is the set of all the specific activities required to being a specific
product though the internal value chain;
3. Flow is about making the value creating steps flow;
4. Pull refers to using a pull schedule; and
5. Perfection is concerned with making improvement a continuous effort.
Different researchers have identified the key characteristics of lean supply
chain based its definitions and applications as are summarized in Table. 2.8 Its shows
that pull repetitive production system, make to order (based on customer wants),
customer oriented approach and daily schedule adherence are some key characteristics
of lean manufacturing system and lean supply chain management.
59
Repetitive production
Floworiented layout
Lewis (2000) found that the success of lean production system is dependent
upon contextual factors such as type of market, dominant technology and supply
chain structure. Furthermore, he noticed a trade-off between lean supply chain and
innovation, such that the more successfully a firm applies lean principles, the less it
will engage in general innovative activity. Naylor et al. (1999) described lean supply
chain as developing a value stream to eliminate all waste, including cost, time and to
ensure a level schedule. A level schedule means that the supply chain and
manufacturing process must be kept away from volatility, protected from uncertainty
and variation. This makes high capacity utilization possible, thus leading to lower
supply chain system costs.
2.7.3 Supply Chain Agility (SCA)
Agility is a business-wide capability that embraces organizational structures,
information systems, logistics processes and in particular, mindsets. A key
characteristic of an agile organization is flexibility. According to the Websters
dictionary; agility is defined as, the power of moving quickly and easily. In other
words, agility is the ability to adapt to changes, and it possesses to attributes the
ability to adopt, and the speed of adaptation. The fundamental tenet of agility is the
ability to adapt to changes as dictated by the competitive market place. Clearly,
flexibility is a key underlying component of agility. Consequently, for a supply chain
to be agile, it must first be flexible.
60
Agility is the ability to produce a broad range of low cost, high quality
products with short lead times in varying lot sized built to individualized customer
specification (Narasimhan and Das, 1999). Goldman et al. (1995) asserts that agility
is a comprehensive response to the business challenges of profiting from rapidly
changing, continually fragmenting, global markets for highquality, high
performance, customer configured goods and services. Sharifi and Zhang (2001)
suggest that agility conceptually encompasses two major factors:
1. Responding to changes (anticipated and unexpected) in due time; and
2. Exploiting and taking advantage of changes as opportunities.
Table 2.9 presents some typical definition identified in literature review from
supply chain and operations literature that exhibit and explicit definitions of agility.
Table 2.9 : Definitions of Agility
Definition
Reference
The ability to accelerate the activities on a critical path Kumar and Motwani
that commences with the identification of a market need (1995).
and terminates with the delivery of a customized product.
A comprehensive response to the business challenges of Goldman et al. (1995).
profiting from rapidly changing, continually fragmenting,
global markets for high quality, high performance,
customer configured goods and services.
The ability to produce and market successfully a broad Vakurka and Fliedner
range of low cost, high quality products with short lead (1998).
times in varying lost sizes, which provide enhanced value
to individual customers through customization.
The ability of a supply chain to respond quickly and McGaughey (1999).
successfully to change.
The capability of supply chain system surviving by Gunasekaran (1999).
reacting quickly and effectively of changing markets,
driven by customers designed products and services.
The ability of enterprises to cope with unexpected changes Zhang and Sharifi
to survive unprecedented threats from the business (2000).
environment and to take advantage of changes as
opportunities.
Agility is the ability to both create and respond to change Highsmith (2004).
in order to profit in a turbulent business environment.
A set of interlinked changes in marketing production Storey et al. (2005).
design and organization.
Ability to efficiently change operating states in response to Narasimhan et al.
uncertain and changing demands placed upon it.
(2006).
61
Source of description
New product agility Sharif and Zhand (1999, 2001) : High rate and quick
and agile deliver
introduction of new products
Aitken et al. (2002): Design and deliver products quickly
and rapid adjustment of products design and change the
delivery locations
Some attempts have been made towards differentiating agility from flexibility.
For instance, Wadhwa and Rao (2003) contend that an agile firm should be capable of
coping with unpredictable changes in market or customer demands. They argue that
the major distinction between flexibility and agility is the character of the situation
requiring change. Flexible changes are response to known situations where the
procedures are already in place to manage the change. Conversely, agility sub sums
the notion of flexibility by adding the ability to respond to unpredictable changes in
the market or in customer demands. This argument concerns with Backhouse and
Burns (1999) conceptualization of agility. They reason that agility is the ability of a
firm to adopt of unforeseen changes in the external environment, while flexibility is
the ability to firm to respond to a variety of customer requirements exist within
defined constraints. Furthermore, agility has been differentiated from lean in that the
letter is a response to competitive pressure with limited resources, while the former is
a response to complexity brought about by constant and typically unforeseen changes
(Sanchez and Nagi, 2001). In other word, leanness may be an element of agility in
certain circumstance; by itself it will not be able to firm to meet the precise needs to
62
the customers more rapidly. Figure 2.7 suggests that the three critical dimensions of
variety, variability (or predictability) and volume determine which approach agile or
lean make greatest sense.
Hi
AGILE
Variety/
Variability
LEAN
Low
Low
Hi
Volume
Many authors have considered that implementation of real supply chain agility
is highly complicated and needs an integrated relationship between supply chain
members. But some models have been introduced for enabling the agile supply chain.
Christopher and Towill (2001) offer a three level model specifies programs of the
agile supply chain (see figure 2.8).
63
In this three level mode, level 1 represents the key principles that underpin the
agile supply chain, rapid replenishment; and postponed fulfillment. Level 2 identifies
the individual programs such as lean production, organizational agility, and quick
response which must be implemented in order for the level 1 principle to be achieved.
Level 3 specifies individual actions to be taken to support Level 2 programs, for
example, time compression, information enrichment, and waste elimination. Not all
the characteristics shown in figure 2.8 may be necessary in any one specific
market/manufacturing context, but it is likely that the agile supply chain will embody
many of these elements. What is certain is that much of the conventional wisdom
concerning manufacturing strategy, supplier relations and distribution will have to be
challenged if real agility is to be achieved from within the supply chain.
64
65
1 2 3
9
4
*
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Total
9
* * *
*
*
* * *
*
* *
* *
* * *
* * *
*
*
*
*
*
*
* *
* *
* *
* *
*
*
*
*
*
16
10
*
*
7
7
Managerial
complexity
IS/IT deficiencies
*
*
*
* *
*
* *
*
*
10
Organizational
*
*
*
*
* *
*
* *
9
structure/ culture
Lack SC
*
*
*
*
*
*
* *
8
measurement
Lack alliance
*
*
* *
* *
*
7
guidelines
Sources : 1- Akkermans and van Doremalen (2004); 2 - Andraski (1998); 3 - Barratt (2004a); 4 - Barratt (2004b); 5- Bender (2000); 6 - Cox (1999); 7Frohlich(2002); 8 - Inger et al.(1995); 9- Johoson et al.(2001); 10 - Kilpatrick and Factor (2000); 11- La Londe (2003); 12 - La Londe and Masters
(1994); 13 - Lee (2004); 14 Lonsdale (1999); 15 - Lummus et al. (1998); 16 - Mentzer et al. (2000); 17- Milligan (1999); 18 - Moberg et al.(2003); 19
- Monczka and Morgan (1997); 20 - Monczka and Morgan (1998b); 21 - Monczka and Morgan (1998a); 22 - Morgan (1997); 23 - Neuman and
Samuels (1996);24 New (1997); 25 Pitera (2000); 26 Quinn (1997); 27 Quinn (1999); 28 Roux et al.(1999); 29 Sheridan (1999);30
Smagalla (2004); 31- Timme and Williams-Timme (2000);32 Tyndall (2000);33 Tyndall et al.(1998);34 van Hoekm et al.(1998)
66
Close relationships with suppliers leave room for special orders in unique
times of high demand, helping satisfy the customer expectations. Addition benefits
are market responsiveness, improving lead-time, improving customer satisfaction, and
remaining competitive (Chin et al., 2004). Overall, SCC potentially creates value for
all members in the chain, but such benefits are different in importance and degree
among partners in a supply chain (Agrawal and Pak, 2001). Mainly, these benefits are
classified into customer focus benefits and company focus benefits (see Table 2.12)
67
68