Supply chain management: a time-based strategy.

Foreign competition is forcing American firms to reorient their business strategies away from conventional, cost-based strategies and more toward time-based strategies. When customers must choose between products with similar levels of quality and price, the decision normally comes down to which product is delivered the fastest. Knowing which features a customer desires in a product is tantamount to speed, quality, and price considerations. Just-In-Time (JIT) manufacturing and other time-compression strategies have had well-documented success in bringing goods to market competitively. Time saved in manufacturing, however, can easily be lost in distribution.

The following discussion provides the reader with an understanding of how JIT principles can be applied to supply chain management practices as a part of a comprehensive, time-based competitive strategy. The focus of this discussion is directed to manufacturing of consumer products, but can be applied in any business setting. The order of the discussion is:

* The supply chain;

* Supply chain management;

* The requirements and benefits of the integrated supply chain; and

* The supply chain integration obstacles.

Supply chain

Ganeshan and Harrison provide a definition of the supply chain in their article, "An Introduction to Supply Chain Management." The article states:

A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry, and from firm to firm.

The supply chain includes a network of physical facilities, the technology and processes of transforming raw material into finished goods, and a method for moving material from one facility to the next in the supply chain - extending from the raw material stage to the end customer or consumer. Figure 1 provides a conceptual model of the supply chain.

The APICS Dictionary clarifies this definition by adding:

the functions within and outside a company that enable the value chain to make products and provide services to the customer.

With this addition, the conceptual model can be extended to incorporate the primary and support functions of the value chain within each link. Though the activities are depicted within an organizational link, the activity may actually be outsourced by the firm. Figure 2 depicts the value chain functions within a supply chain link.

In a traditional supply chain, the different organizations that constitute the supply chain are independently operated, which often result in conflicting organizational objectives. This is the case when supply chains are made up of different, unrelated organizations. It is also true in the case of vertically integrated organizations where different functional departments have different operational objectives. With each link in the supply chain myopically focused toward achieving internal goals, the traditional supply chain operates in a sub-optimal manner with respect to its overall reason for existence.

Supply chain management

Turner supplies a definition of supply chain management (SCM):

SCM is a formal linkage among all levels in a marketing channel...it is a technique that looks at all the links in the chain from raw material suppliers through various levels of manufacturing and distribution to the final customer.

Turner adds that by viewing the entire supply chain as a single entity, a consistent plan can be developed for supply and demand. This type of planning can be used between functional groups in the case of vertically integrated firms. The version created by such planning can:

* Increase customer service;

* Lower inventory levels;

* Reduce paperwork;

* Aid in the consolidation distribution centers; and

* Reduce inventory costs.

Supply chain management is not just another name for supplier management. Supply chain management is a strategy that integrates the various organizations' objectives in order to increase the efficiency of the entire supply chain.

Supply chain management comes in many different forms today. Some call it Efficient Consumer Response (ECR), Quick Response (QR), Virtual Logistics, or Continuous Replenishment, to name a few. All vary in the level of integration, but all perform either interorganizational or intraorganizational boundary spanning through a plan devised to coordinate activities in an integrated manner. In essence, all of these systems integrate the supply and value chain to some extent.

Requirements and benefits

In order to introduce the highest level of integration in the supply chain, the management of most companies will have to develop a new perspective. The view of one company competing against other companies for consumers will be replaced by the concept of various, distinct supply chains competing for final consumers. The highly integrated supply chain can be an important source of improvement for a firm, but in order to achieve the necessary level of integration, it will take the commitment of top management.

Intraorganizational reengineering first

To get the most out of an integrated supply chain, businesses will need to reengineer their business processes. The reason business process reengineering is needed, is that the links in most supply chains have substantial inefficiencies in them. Integrating these inefficient processes will only speed up the inefficiency intervals. By reengineering and improving the processes within the supply chain links, then integrating the processes between links, companies can make simultaneous gains in productivity, service, and cycle time.

Strategic partnerships are necessary to get the most out of supply chain management, though substantial results are possible just by streamlining linkages for time and cost using systems like electronic data interchange (EDI), automatic stock replenishment, etc. By developing strategic partnerships, it is possible to work more effectively with a few important suppliers and customers who are willing to share responsibility for and in the success of the product. Strategically aligned companies can work closely together and eliminate wasted time and effort, rather than simply shifting the burden to some other link in the supply chain.

Strategic partnership objectives

Companies wanting to strengthen their competitive position through the use of strategic partnerships in the supply chain should focus their mutual efforts on:

* Improved communication;

* Clarification of needs and expectations;

* Elimination of problems and concerns;

* Consistent performance; and

* Creation of competitive advantages.

By concentrating efforts on these strategic initiatives, individual companies can realize improvements in quality, productivity, delivery, and customer satisfaction.

Strategic partnership essentials

Buzzell and Ortmeyer recommend the following requirements for successful partnerships:

* Full commitment of top management;

* Technological skills and resources;

* Changes in organizational structure and culture;

* Change of adversarial attitude of the customer/supplier relationship to one of mutual trust; and

* Development of commonly agreed upon performance measures.

The decision to integrate the supply chain and engage in strategic partnerships must have the support of top management. Without this support, the changes needed in corporate structure, process reengineering, organizational culture, or attitudes are not possible.

Quality and continuous improvement considerations

One of the primary goals of Total Quality Management (TQM) is customer satisfaction. Deming promoted single sourcing and limiting the supply base as methods for reducing the variability in incoming product quality. Thus, quality requirements are certain to be associated with strategic supply chain partnerships.

Strategic partnerships require that the partner firms articulate quality requirements and expectations. Incoming supply quality has to be a "given" to aid in reducing overall supply chain costs. When the suppliers maintain process control with minimized variation, purchasing firms downstream can reduce time and costs associated with inspection of incoming supplies.

Information sharing 

Information sharing is important when integrating the supply chain. At the ultimate level of integration, all member links in the supply chain are continuously supplied with information in real time. According to Ellesmere, effective supply chain management is not possible without Information Technology (IT) systems designed to provide readily accessible and accurate information to all supply chain participants. He also warns against rushing to install a new IT system in the supply chain before ferreting out service and cost inefficiencies. Doing so, Ellesmere contends "serves only to embed the old service and cost inefficiencies in any subsequently redesigned supply chain." Ellesmere provides a best practice approach to information sharing. (Table 1).

Electronic data interchange

Electronic data interchange (EDI) can be an important tool for integrating the supply chain, especially with international trading partners that require a great deal of documentation on frequent shipments. Murphy and Daley list the major benefits that users of EDI technology receive:

* Quick access to information;

* Better customer service;

* Reduced paperwork;

* Better communications;

* Increased productivity;

* Improved tracing and expediting;

* Cost efficiency;

* Competitive advantage;

* Accuracy; and

* Improved billing.

Figure 3 shows a simplified version of how the integrated supply chain might function in an international sourcing environment where the exporting country has a "community system" for EDI communications. Some countries, Singapore for example, have already installed community systems to aid in the rapid clearance of documentation required in international trade.

The clearing center is a value-added network that links all of the other entities needed for international trade. For each shipment, only one EDI message - containing all the needed information is sent to the clearing center. The clearing center then relays the specific information required between entities as needed. Upon completion, the clearing center sends the processed document back to the exporting company.

Benefits of an integrated supply chain

One of the key benefits of supply chain integration is the close relationships that occur in the supply chain. These close relationships allow some companies to benefit from the expertise of others in the supply chain. Monezka and Morgan state "A smart company can leverage a smart supplier's innovations and know-how without an equity investment, and vice versa." Another key benefit is that the integrated supply chain gives management more options in developing a competitive strategy than can be done within the boundary of a single firm. Monezka and Morgan believe that integrating the core competencies of several companies provides those companies with new options in:

* Quality improvement;

* Technology deployment; and

* Total cost improvement.

Supply chain integration obstacles

Companies attempting to integrate the supply chain face many hurdles. One of the first problems that must be overcome is getting the support of top management. Many CEOs do not rank supply chain integration as a major concern or as a strategic direction. Some CEOs are simply unwilling to risk making the changes necessary for supply chain integration unless they are forced into a position where the environment requires such action.

Supply chain integration makes it more complex for a company to manage its suppliers. If integration is not properly designed and implemented, more waste and duplicated efforts are often the results. Owens and Richmond of Andersen Consulting believe that companies that integrate the supply chain correctly, do so by addressing six major obstacles to change:

* Lack of shared vision;

* Culturally frozen beliefs;

* No shared sense of urgency;

* Lack of a champion;

* Lack of appropriate skills for the reinvented business; and

* Not enough visible involvement by senior management.

A glance at the future

The growing competitiveness of the business environment is likely to continue into the future. Under this competitive pressure, businesses will be forced to seek improved methods of delivering goods to market as quickly and cost efficiently as possible. Integrating the supply chain offers too many possibilities to be ignored. Companies that maintain their "traditional view" of supply management will ultimately become noncompetitive.

The seeds of the future in supply chain management have been sown and are beginning to bear fruit. Advanced logistical systems such as ECR are beginning to make an impact, bringing the right products to market when consumers want them, at a fraction of the cost of traditional systems. The wave of the future in supply chain management will have to contain essential JIT principles, a customer orientation, a focus on quality, a reliable delivery system, and a long-run perspective.

Table 1

A Best Practice Approach to Information Sharing Involves:

* Having a common vision across the business for systems functionality and architecture.

* Taking a consistent, tried and tested approach to system definition, design, and implementation.

* Ensuring that planning and transactions systems are closely coupled, and systems are flexible enough to accommodate changes in the mix between centralized and decentralized control activities.

* Planning for real-time integration and visibility of information to be available within the business and across boundaries with suppliers and customers.

* Using package-based applications where appropriate to increase speed and reliability to reduce implementation costs.

* Ensuring that information requirements are consistent with key performance indicators.

Source: Steve Ellesmere. Nov. 1, 1995. "Distribution & Logistics: Transforming the supply chain." Prime Marketing Publications. [Available] http://www.pmp.co.uk/transfor.htm.

For further reading

Blackburn, J., Time-based competition: the next battleground in American manufacturing, Homewood: Irwin, 1991.

Bryne, P., "Global Logistics," Transportation & Distribution, December 1993.

Bryne, P.M. and Young, S.V., "UK Companies Look at Supply Chain Issues," Transportation & Distribution, February 1995.

Burns, R., "Capability is where the action is," Logistics Information Management, 1994.

Buzzell, R.D., & Ortmeyer, G., "Channel Partnerships Streamline Distribution," Sloan Management Review, Spring 1995.

Cox, J.F., Blackstone, J.H., & Spence, M.S. (Eds.), APICS Dictionary (8th ed.). Falls Church, Virginia: American Production and Inventory Control Society, 1995.

Ellesmere, S., "Distribution & Logistics: Transforming the Supply Chain," (On-line: http:~/www.pmp.co.uk/transfor.htm), November 1995.

Ganeshan, R., and Harrison, T.P., "An Introduction to Supply Chain Management," (On-line: http://silmaril.smeal.psu.edu/misc/supply chain intro.html), May 1995.

Harrington, L. (Ed.), "Logistics, Agent for Change: Shaping the Integrated Supply Chain," Transportation & Distribution, January 1995.

Landeros, R., Reck, R., & Plank, R.E., "Maintaining Buyer-Supplier Partnerships," International Journal of Purchasing & Materials Management, Summer 1995.

Millen, R., "Time-based competition: the battleground in American manufacturing," Homewood: Irwin, 1991.

Monezka, R. & Morgan, J.P., (1996, January 11), "Supplier Integration: A New Level of Supply Chain Management," Purchasing, January 1996.

Murphy, P. & Daley, J., "International Freight Forwarder Perspectives on Electronic Data Interchange and Information Management Issues," Journal of Business Logistics, 1996.

Owens, G. & Richmond, B., "How to Reinvent Your Supply Chain: What Works, what Doesn't," Chain Store Age, November 1995.

Stuart, F. I. & Mueller, P., "Total Quality Management and Supplier Partnerships: A Case Study," International Journal of Purchasing & Materials Management, Winter 1994.

Turner, J.R., "Integrated Supply Chain Management: What's Wrong with this Picture?" Industrial Engineering, December 1993.

Phillip W. Balsmeier, Ph.D., is a professor of management at Nicholls State University in Thibodaux, Louisiana. Wendell J. Voisin is a graduate assistant and MBA student at Nicholls State University.