Supply Chain Management and Its Impact on Purchasing.
The term supply chain management (SCM) was initially used in wholesaling and retailing to describe the integration of logistics and physical distribution functions with the goal of reducing delivery leadtimes. Manufacturers and service providers have used the same term to describe integration and partnership efforts with first- and second- tier suppliers to reduce Cost and improve quality and delivery timing. Terms such as integrated purchasing strategy, integrated logistics, supplier integration, value chain management, supply base management, strategic supplier alliances, lean production, Just-In-Time (JIT) logistics, and supply chain synchronization have been used in the literature to address certain elements or stages of this new management philosophy (see, for instance, Tan et al. (1998) and La Londe and Masters (1994)). SCM services are offered by various transportation companies, SCM courses and programs are offered by a number of universities, and a number of articles on SCM have appeared in business and academic publications.
Despite the popularity of the term, there exists no practical, explicit, widely accepted description of SCM or its activities. Conceptually, SCM includes all value-adding activities from the extraction of raw materials through the transformation processes and through delivery to the end user. SCM spans organizational boundaries and treats the organizations within the value chain as a unified virtual business entity (Scott and Westbrook 1991; New and Payne 1995). Baatz (1995) further expanded SCM to include recycling or reuse activities. However, in the SCM literature, there has been little discussion on identifying supply chain participants, which processes are integrated, or how to successfully manage supply chains (Lambert et al. 1998).
This exploratory research had the overall objectives of describing supply chains and identifying current practices and problems associated with supply chain management. To achieve these goals, a group of senior supply and materials management professionals from manufacturing industries in the United States was surveyed. The survey investigated the breadth of SCM, the impact of SCM on a wide variety of purchasing practices and firm characteristics, and the operating problems specifically related to SCM. Based on the research findings, a clearer picture of SCM practice emerged, with implications for both practitioners and researchers.
The following section reviews the SCM literature. Subsequent sections present the research methodology, demographic characteristics of the respondents, a working description of industrial supply chains, organizational and purchasing strategies and their relationship to SCM, a description of SCM problems, supplier issues and their relationship to SCM, and, finally, the managerial implications of the results. Future research directions are suggested and discussed.
THE SUPPLY CHAIN MANAGEMENT LITERATURE
The intense global competition of the past decade has led many organizations to create cooperative, mutually beneficial partnerships with suppliers, distributors, retailers, and other firms within the supply chain. The objective of those partnerships has been to offer lower-cost, higher-quality products and services with greater design flexibility. The partnerships are particularly critical in JIT manufacturing where there is little inventory to cushion production, scheduling, and usage problems. Manufacturers and service organizations have experimented with strategic partnerships with suppliers and transportation and warehousing providers. Manufacturers have utilized supplier strengths and technologies to support new product development efforts (Morgan and Monczka 1995) and have drastically reduced supply bases to a handful of certified suppliers (Inman and Hubler 1992). Retailers have seamlessly integrated their logistics functions with transportation partners to achieve direct store deliveries or cross-doc king without the need for incoming inspections (St. Onge 1996).
Supply chain management has been used to denote these attempts to integrate and partner with suppliers and to integrate logistics functions and transportation providers to efficiently and effectively manage the value chain. More recently, SCM has focused on integration, customer satisfaction, and business results. Most of the recent literature on SCM focuses on manufacturers' attempts to integrate processes and form alliances with suppliers to more efficiently and effectively manage the purchasing and supply function. Carter et al. (2000) forecast that supplier selection will increasingly be based on strategic contribution to the supply chain and will extend beyond first-tier suppliers.
The SCM philosophy expands the internally focused integrating activities of logistics by bringing multiple organizations along the supply chain together with the common goals of efficiency and end-customer satisfaction (Harwick 1997). SCM creates a virtual organization of independent entities to efficiently and effectively manage the movement and transformation of materials, components, products, and services along the supply chain until final delivery to the end user. Thus, SCM integrates a number of key functions, including purchasing, demand management, distribution planning, quality management, manufacturing planning, and materials management, throughout the supply chain.
The short-term objective of SCM is primarily to increase productivity and reduce inventory and cycle time. Its long-term strategic goal is to increase customer satisfaction, market share, and profits for all members of the virtual organization. To realize these objectives, all strategic partners must recognize that the purchasing function, with its boundary-spanning activities, is a crucial link between the sources of supply and the organization. Early involvement of suppliers in product design, for instance, allows manufacturers to develop alternative solutions; to select the best and most affordable components, materials, and technologies; and to receive help in design assessment (Burt and Soukup 1985). Supplier involvement in product and process design and continuous improvement activities has been shown to have a positive impact on competitive advantage and performance (McGinnis and Vallopra 1999; Vonderembse and Tracey 1999). In general, SCM seeks improved performance through elimination of waste and bet ter use of internal and external supplier capabilities and technologies (Morgan and Monczka 1996).
The retailing industry has focused on different aspects of SCM, namely, location, transportation, and logistics issues. Indeed, the origin of supply chain management can be traced back to efforts to better manage the transportation and logistics functions (Fisher 1997; Lamb 1995; Whiteoak 1994; Turner 1993; MacDonald 1991; Stock and Lambert 1987). The wholesaling and retailing industries incorporate a logistics focus within their strategic decisions. SCM would allow channel members to compete as a unified entity instead of just pushing inventories down the supply chain to end customers. Thus, the benefits of vertical integration could be obtained by coordinating the logistics functions of independent firms in the chain (La Londe and Masters 1994). In this respect, SCM is synonymous with integrated logistics systems that control the movement of goods from the suppliers to end customers without waste (Ellram 1991).
Integrated logistics systems seek to manage inventories through close relationships with suppliers and transportation, distribution, and delivery services. A goal is to replace inventory with frequent communication and sophisticated information systems to provide visibility and coordination. In this way, merchandise can be replenished quickly in small lot size and arrive where and when it is needed (Handfield 1994; Shapiro et al 1993). Firms that use advanced process technology to increase flexibility and involve manufacturing managers in strategic decisionmaking alter the role of logistics in firm success (Tracey 1998). Quick, frequent, and accurate information transfer among members of the supply chain can counteract the distortion of information (known as the bullwhip effect) as it passes up the supply chain from the end customer (Metters 1997). A supply chain can reduce overall inventory while maximizing customer service by efficiently redistributing stock within the supply chain using effective postponem ent and speculation strategies (Pagh and Cooper 1998; Davis 1993; Scott and Westbrook 1991).
Despite its importance, theoretical development, and popularity in the business and academic press, there is little empirical research that clearly defines SCM and its impact on the firm and its trading partners. This research addresses these issues, with particular attention paid to the purchasing function and its role in SCM.
To gauge the current understanding and use of supply chain management practices, a survey was designed and sent to 1,500 randomly selected U.S. purchasing and materials managers from the National Association of Purchasing Management (NAPM) membership list. A review of the supply chain management and related literature revealed a number of commonly cited practices and concerns associated with SCM, which were incorporated into the survey. The survey included sections regarding SCM strategies, supply and materials management, operations, information technology and sharing, and customer service/distribution. Additionally, a number of potential SCM concerns or problems were also identified and included in the survey. These concerns included cooperation and trust among supply chain members, information-sharing capability, competition, and geographical proximity between supply chain members. The survey instrument also included a number of general questions regarding SCM and its relationship to various elements with in the firm.
For many of the survey questions, respondents were asked to indicate, using a five-point Likert scale (where 1 = low and 5 = high), the importance, impact, or success of the various SCM practices, issues, and terms. Tables III through VI contain summary information of actual questions asked in the survey. A number of other questions required simple yes or no answers, and several demographic questions were also included in the questionnaire.
The survey instrument was pretested for content validity using 30 purchasing managers. Where necessary, questions were reworded, added, or discarded to improve validity and clarity. The pretest questionnaires were not used for subsequent analyses. The revised survey instrument was then sent to 1,500 supply and materials managers of U.S. manufacturing companies, using a modified version of Dillman's (1978) total design method. Firms represented by these individuals were from Standard Industrial Classification codes 20 to 39 (manufacturing firms). Care was taken to delete multiple listings for firms with more than one NAPM member listing. Two complete survey mailings, with one reminder postcard after the first mailing, resulted in 101 usable returned surveys. The 6.7 percent response rate was considered reasonable, given the subject's complexity and the length of the survey.
To investigate the possibility of non-response bias in the data, a test for statistically significant differences in the responses of early and late waves of returned surveys was performed (Armstrong and Overton 1977; Lambert and Harrington 1990). The last wave of surveys received were considered to be representative of non-respondents. The sample was split into two groups on the basis of early and late survey return times and t-tests were performed on the responses of the two groups. The groups represented the first 74 and last 27 responses of the 101 responses received. The t-tests yielded no statistically significant differences among the survey items tested. These results suggest that non-response bias did not significantly impact this study.
Finally, because much of the data presented in the tables was generated using scaled responses, it was deemed necessary to test for internal consistency. Table VII contains this information. Cronbach-Alpha tests were performed on the scaled data shown in the tables. Based on the coefficient values, the measures tested were deemed reliable for this type of exploratory research (Nunnally 1978).
RESPONDENT FIRM DEMOGRAPHICS
General demographic information of the respondent firms is presented in Table I. Most of the firms were either final product or component manufacturers with regional U.S. or global market coverage. A large percentage of the respondents (over 78 percent) stated they practiced some form of supply chain management, based on the definition provided in the survey (shown in Table I). A wide range of firm sizes was represented in the sample as indicated by number of employees and annual sales. Tables II through VI summarize the SCM practices and concerns of the 79 respondents whose firms practiced some form of SCM.
A DESCRIPTION OF RESPONDENTS' SUPPLY CHAINS
To explore the breadth of respondents' supply chain practices, respondents actively practicing supply chain management were asked to describe the various participants in their supply chains. The findings are summarized in Table II. Respondents were shown a schematic of an extensive supply chain encompassing raw material extractors, raw material manufacturers, component manufacturers, final product manufacturers, wholesalers, retailers, final consumers, physical distribution, and product recycling. They were instructed to circle the elements included in their SCM efforts.
Based on the responses to this question, a picture of the respondents' supply chains emerged. Supply chain breadth varied widely, from a single-firm logistics view (12.7 percent said their supply chain included just their firm or their firm and transportation/distribution services only) to a fully developed effort including multiple tiers of both suppliers and customers and physical distribution services (17.7 percent indicated a fully developed supply chain both upstream and downstream of the responding firm). Over 31 percent of the respondents indicated their supply chain practices concentrated only on the incoming supply side, while only 10.2 percent indicated an outgoing distribution side supply chain concentration. Over 40 percent of the respondents stated their SCM efforts were balanced, to include some level of SCM development in both the supply and distribution sides of the firm. Over 25 percent of the respondents included the final consumer in their SCM efforts, and 19 percent indicated an emphasis on recycling throughout their supply chain.
Based on these results, it appeared that most of the firms were not attempting to integrate broadly the efforts of their supply chain members, preferring instead to localize partnership efforts to include first-tier suppliers and/or first-tier customers and immediate distribution services or customers. It was somewhat surprising that only one-quarter of the respondents included contact
STRATEGIC ELEMENTS OF SUPPLY CHAIN MANAGEMENT
Table III presents a number of organizational and purchasing department strategies and their importance to successful SCM. Respondents were asked to signify the importance of a number of purchasing-oriented strategic activities, based on a five-point Likert scale response (1 = low importance and 5 = high importance).
Organizational strategies viewed by the respondents as being important determinants of SCM success were:
* Reducing response time across the supply chain
* Increasing trust among supply chain members
* Improving activity integration across the supply chain and searching for new ways to integrate these activities
* Establishing more frequent contact among supply chain members
* Increasing the firm's JIT capabilities
Thus, important SCM strategies involve speed, trust, and activity integration across the supply chain's members. Evidently, instituting JIT practices was seen as a means of incorporating these strategies into the firm. Other organizational strategies deemed important to the firm were, for the most part, concerned with communication capabilities and sharing information among supply chain members. Strategies seen as significantly less important to the respondents were extending supply chains beyond first-tier participants and creating interorganizational SCM teams.
With respect to strategic activities in purchasing, respondents considered on-time delivery of materials directly to points of use and communicating the firm's future strategic needs to suppliers as important to successful SCM. The respondents assigned a moderate level of importance to aiding suppliers to increase their JIT capabilities and participating in the sourcing decisions of the firm's suppliers. Significantly less important was requiring suppliers to locate closer to the firm.
Thus, when considering the relationship between strategic activities and SCM success, respondents clearly are interested in the integration of buyer-supplier activities, improving trust among supply chain members, and creating a more responsive supply chain. Improving JIT capabilities both within the firm and among suppliers is evidently seen as one way to improve supply chain responsiveness. Interestingly, the lack of importance in extending the supply chain beyond first-tier members is once again highlighted in the findings.
PROBLEMS AND CONCERNS IN SUPPLY CHAIN MANAGEMENT
Table IV reports on a number of potential problem areas that prevented the respondent firms from achieving their supply chain management objectives. These problem areas were cited in many of the articles reviewed for this research project, as well as identified through conversations with a number of practitioners. Respondents practicing SCM were asked to assess the severity of each of the potential problems with respect to their firms, based on a five-point Likert scale (1 = low severity and 5 = high severity). Based on the mean responses, none of the potential problems surfaced as being extremely severe; all were judged to be moderately to less-than-moderately severe. Problems concerning information systems, information sharing, cooperation, and trust appeared to be the most troublesome.
SUPPLIER ISSUES IN SUPPLY CHAIN MANAGEMENT
Reducing or reevaluating the supply base is commonly mentioned in the JIT and SCM literature as a means of creating closer, interdependent buyer-supplier relationships. Thus, exploring the recent changes in the supply base of the respondents could provide some insights into the value of these activities relative to the practice of SCM. (Indeed, a number of respondents were only concerned with this aspect of SCM, as reported in Table II.) Information regarding these issues appears in Table V.
For the prior three-year period, the respondents practicing SCM experienced an increase in outsourcing activity of over 13 percent. During the same time period, the respondents increased the number of "distinguished" and "key" suppliers by 13.5 percent and 8.7 percent, respectively. Definitions of these terms were provided in the survey and are shown in Table V. In short, distinguished and key suppliers were described as having more strategic value and better quality systems than general or provisional suppliers. Expenditures with these suppliers increased by nearly 15 percent and 9 percent, respectively. The number of "general" and "provisional" suppliers (also defined in the survey and in Table V) decreased by over 3 percent, and the purchase dollars attributed to these suppliers declined similarly.
Another issue is the supplier management methods used to ensure supplier conformance to specifications. Respondents were asked to assess, on a five-point Likert scale, the importance of a number of supplier conformance issues. Items found to be most important included ensuring that:
* Suppliers' purchases adequately conformed to their (the respondent firm's) purchase specifications
* Suppliers investigated nonconformance causes and took corrective actions
* Suppliers implemented quality policies
* Suppliers established and documented their quality systems
* Suppliers maintained adequate inspection and testing equipment
Performance evaluation and selection criteria for the distinguished and key suppliers were addressed in the survey When periodically evaluating existing suppliers, respondents practicing SCM placed a high level of importance on product quality, customer service, on-time delivery, response time, and delivery flexibility. Criteria such as product price, communication capabilities, and supplier certification were seen as significantly less important to this group. When selecting distinguished and key suppliers, respondents placed a high level of importance on the ability to meet due dates, the commitment to quality, suppliers' technical expertise, the commitment to continuous improvement, and product prices.
Based on this survey, it appears that firms practicing SCM are actively increasing their purchasing activity with distinguished and key suppliers, while decreasing the use of general and provisional suppliers. Additionally, they are strongly committed to ensuring that suppliers conform to their quality requirements. Quality and customer service issues are seen as the most important supplier selection and evaluation concerns.
STRATEGIC ALLIANCE AND SUPPLIER CERTIFICATION PROGRAMS
Concerted, formal efforts to create strategic alliances with a firm's best suppliers and to certify their quality capabilities frequently have been cited as crucial to the ongoing success of SCM programs. Information about these efforts appears in Table VI.
Most of the respondents practicing SCM (over 60 percent) stated they did have a formal partnership or strategic alliance program. Over the past three years, there has been an average increase of over 22 percent in the number of strategic alliances created with suppliers. Because instituting partnership programs creates an expectation of increased supplier performance, questions about performance were included in the survey Based on the responses, the partnerships had met with moderate-to-high success on all of the performance measures (see Table VI).
Supplier certification programs were also common among the respondents practicing SCM. The vast majority (nearly 76 percent) stated that they required suppliers to be certified. The most popular certifications were ISO 9000 certification (65 percent of the respondents) and the respondent's own certification program (approximately 58 percent).
A number of important supplier issues emerged from this study. The respondents utilized an increasing number of distinguished or key suppliers; outsourced more frequently over time; developed strategic alliance and supplier certification programs; involved their personnel in their suppliers' quality improvement and purchasing practices; and selected and evaluated suppliers based on quality, customer service, and flexibility.
This study endeavored to identify current supply chain management issues and practices for manufacturing firms operating in the United States. One of the important contributions of this study is the revelation of the limited reach of supply chain management activities. Many responding firms concentrated their SCM efforts primarily on the supply side. Further, only one-fourth of the respondents included end product user needs in their SCM practices. This is seen as a potential weakness in current supply chain management practice. A number of organizational and purchasing department strategies were also identified as key contributors to SCM success. These included strategies to increase trust, the integration of activities, and communication among supply chain members.
This study also identified a number of supplier issues related to SCM. Firms practicing SCM are outsourcing more today than in the past and are using suppliers that are capable of providing a strategic benefit to the firm in terms of product quality, delivery response, and flexibility. As a result, second-tier supplier capabilities and conformance has become an extremely important issue. The implication is that purchasing managers should take an active role in identifying first- and second-tier supplier linkages and become involved in the management of these relationships. With respect to supplier selection and evaluation, this study supported a number of earlier research findings that quality, customer service, and delivery criteria are more important than product price.
Finally, a large number of the respondents practicing SCM are forming strategic alliances with suppliers, a practice that has increased significantly in recent years. In tandem with this practice, firms are requiring suppliers to become certified, using either ISO 9000 standards or company-specific standards. These practices are thought to increase cooperation, communication, and quality, and to reduce total costs.
LIMITATIONS OF THE RESEARCH
This exploratory study attempted to identify the current understanding of supply chain management. Like other exploratory studies, this study has its limitations. The random sample of respondents was obtained from the NAPM membership list. Thus, the results are generalizable to the general population of companies only to the extent that the NAPM membership list reflects the population of all U.S. firms. Furthermore, much of the reported data are based on management perceptions, which may not adequately reflect actual practice.
Future research efforts on this topic area should include suppliers' perspectives, distribution issues, and customer interaction issues. Furthermore, respondents from functions other than purchasing could also offer valuable insights on SCM. Specifically, production managers could offer a different perspective on quality conformance, distribution, and customer satisfaction issues. Finally, transportation services play a key role in successful supply chain management and should be included in the development of a more complete SCM model.
Joel D. Wisner is an associate professor of management at the University of Nevada in Las Vegas, Nevada.
Keah Choon Tan is an assistant professor of operations management at the University of Nevada in Las Vegas, Nevada.
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|Author:||Wisner, Joel D.; Tan, Keah Choon|
|Publication:||Journal of Supply Chain Management|
|Date:||Sep 22, 2000|
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