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Business Horizons (2017) xxx, xxx—xxx
Available online at www.sciencedirect.com
ScienceDirect www.elsevier.com/locate/bushor
An integrated approach to managing extended supply chain networks
Kenneth Saban, John R. Mawhinney, Matthew J. Drake * Palumbo-Donahue School of Business, Duquesne University,600 Forbes Avenue, Pittsburgh, PA 15282, U.S.A.
KEYWORDS Supply chain management; Buyer-seller relationships; Supply chain network; Firm collaboration; Collaborative supply chain
In an effort to improve their competitive position in a rapidly changing marketplace, many companies have replaced their traditional supply chains with extended supply chain networks built on a foundation of supply chain collaboration. These extended networks require the use of decision support tools and technologies to improve both operating ef ciencies and customer service, but many companies have struggled to realize the expected bene ts of these tools and the increased collaboration. This article recommends that companies adopt an integrated strategy of people, processes, and technology to achieve their competitive supply chain goals. Our recommendation is backed by the results of a survey we conducted of seniorlevel practitioners concerning the importance and challenges of supply chain colAbstract
laboration. The article concludes with a set of managerial recommendations to improve a company ’s collaborative efforts within its supply chain. # 2017 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
1. Introduction Increased competition and shortened product life cycles are forcing executives to rethink how their businesses are going to compete today. In an effort to provide more value-laden products in shorter periods of time, executives are replacing their traditional supply chains with extended supply chain networks (Accenture, 2005; Cisco Systems Inc., 2006; Microsoft, 2006). Extended supply chain
* Corresponding author E-mail addresses:
[email protected] (K. Saban),
[email protected] (J.R. Mawhinney),
[email protected] (M.J. Drake)
networks represent an expanded set of collaborating companies, both upstream and downstream, that work together to bring value-laden products to the customer (Davis & Spekman, 2004). While extended supply chain networks tap into a wide array of external resources, they also require a high degree of supply chain collaboration (SCC) between partners as employees identify and analyze important developments in their work environment and then pass this information on to others to act upon (Bitran, Gurumurthi, & Sam, 2006; Hoque, 2002). To achieve SCC, managers are using the latest decision support systems and technologies (e.g., APS, CPFR, SRM) to improve their rms’ agility, reduce cycle times, achieve higher ef ciencies, and deliver value-laden products to customers in
0007-6813/$ — see front matter # 2017 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.bushor.2017.05.012
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a timely fashion (Giménez & Lourenço, 2008; Radjou, 2003). However, in some cases these tools are not making the rms more competitive. Forrester (2005) reported that while 48% of U.S. businesses implemented advanced supply chain technologies, only 9% considered future updates, with the remaining businesses not sure how to proceed. Microsoft (2006) found that a culture of openness contributed 36% to collaboration quality while the use of collaborative technology only contributed 16% to collaboration quality. Kelton Research found that while 80% of C-level executives believe in enterprise-wide collaboration, only 30% feel that communication tools have made it easier to work (Avanade, 2010). Fawcett, Fawcett, Watson, and Magnan (2012) argued that the inability of companies to achieve high levels of SCC is in part due to the lack of removing behavioral constraints. These constraints include inter- rm con ict, nonaligned goals, and the non-sharing of sensitive information. These behavioral restraints also inhibit the use of the collaborative communication technologies in place (Setia, Sambamurthy, & Closs, 2008; Wu, Yeniyurt, Kim, & Cavusgil, 2005). The same observation was made during the development of Management Information Systems (MIS). The Standish Group found that 24% of MIS projects failed, 44% were challenged, and only 32% were successful when technology was considered the sole contributing force. The problem was that management did not realize that MIS projects hinge
it. One executive was quoted as saying (Cohen & Roussel, 2005):
on having two systems in place: (1) a technical system that is concerned with the processes, tasks, and technology needed to transform inputs into outputs; and (2) a social system that represents the relationships among people, reward systems, and authority structures (Bostrom & Heinen, 1977). Technocentric thinking, which is based upon the belief that SCC can only be achieved by having the right technology in place, has been reinforced by the business press, which has promoted information technology as a silver bullet. In this article, we argue that an integrated strategy–—one that links people, processes, and technology–—is a better strategy to employ when working to achieve SCC. This position is supported in the literature presented herein as well as the ndings of a SCC survey involving senior business practitioners. The article will conclude witha set of speci c recommendations
knowledge, risks, and rewards. Hansen (2009) submitted that SCC takes place when people from different units help each other to achieve a common goal that goes beyond shipping data back and forth between parties. Integrating this perspective with a signi cant collection of research,1 we posit that SCC is best achieved when separate autonomous organizations successfully integrate their resources–—people, processes, and technology–—to achieve a common goal (see Figure 1). This allows the right people to connect with the right expertise or information at the right time to drive the right business decision. Having identi ed the three actors in SCC, the next step is to determine their respective roles across different buyer-seller relationships.
If you asked 100 supply chain executives for a de nition, you’d likely get 100 different answers. Certainly most would agree that collaboration is important, that technology and relationship building are critical components, and that companies with effective collaboration skills are likely to have a competitive advantage. However, few executives would be able to offer a clear, unambiguous de nition. For those rms that forged with various SCC initiatives, the Computer Sciences Corporation (2004) found that only 44% of the rms had staff dedicated to improving external collaboration and of those collaboration initiatives, only 35% turned out to be moderately successful. Given the confusion surrounding SCC, a good place to start isby establishing an operational de nition.
2.1. Supply chain collaboration Davis and Spekman (2004) de ned collaboration as a state where individual parties work together to achieve mutually bene cial outcomes. Cohen and Roussel (2005) and Ramanathan and Gunasekaran (2014) suggested that SCC is the means by which various partners work together toward mutual objectives through the sharing of ideas, information,
to facilitate SCC in extended supply chain networks.
2. Literature review While there is growing interest in the bene ts of SCC, management is often unsure of how to achieve
1 Speci cally, see Copacino (1997); Fredendall and Hill (2000); Melville, Kraemer, and Gurbaxani (2004); Poirier, Ferrara, Hayden, and Neal (2004); Gain (2005); Coyle, Langley, Gibson, Novak, and Bardi (2008); Fawcett, Magnan, and McCarter (2008); Soosay, Hyland, and Ferrer (2008); Hansen (2009); Fawcett et al. (2012); and Chopra and Meindl (2013).
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An integrated approach to managing extended supply chain networks Figure 1. An integrated approach to supply chain collaboration
People
Supply Chain Collaboration
Technology
Processes
2.2. Buyer-seller relationships Many factors are involved in categorizing buyer/ seller relationships, not the least of which is the time the individuals involved have personally invested to maintain a relationship. However, considering the strategic value of SCC often leads the buying organization to assess the risk and value associated with the goods or services exchanged in the supply process. One approach involves mapping the goods or services in relationship to the quadrants identi ed in the risk-value matrix (Figure 2). Mapping against the matrix enables the supply manager to strategically assess the risk-value relationship between major categories of purchased goods and services and subsequently develop the best allocation strategy of people and technology Figure 2.
resources to complete the acquisition process. This is a bene cial and necessary process given that most medium to large companies source from many suppliers, making it infeasible to conduct business at high levels of collaboration with all of them. A number of general supply market characteristics align with the quadrants of the risk-value matrix. One very in uential element from a sourcing strategy perspective is the number of suppliers in the quadrant and subsequently the level of supply chain surplus of the goods and services. Figure 3 provides another view of the quadrants comparing the number of suppliers to the value of the goods or services. For example, generic items are low value and low risk with many suppliers; this drives corresponding supply management strategies of minimizing total delivered cost and reducing transaction costs through systems such as e-catalogs. At the same time, critical items with high risk and value generally have few suppliers and little supply chain surplus and are best addressed with strong collaborative alliances. With the clarity of the risk value relationship aligned with a supply strategy, a more in-depth SCC strategy can be developed. With the inverse relationship between risk and the number of suppliers in the market place, a series of market exchange relationships can be established. Geref , Humphrey, and Sturgeon (2005) and Ashenbaum, Maltz, Ellram, and Barratt (2009) argue that supply chain exchanges can be categorized as market,
Risk-value matrix Unique
Strategic
high risk/low value (custom products)
high risk/high value (patented products)
Generics
Commodities
low risk/low value (office supplies/MRO)
low risk/high value basic production items (logistics services)
k is R
Value or Profit Potential
Source: Monczka, Hand eld, Giunipero, and Patterson (2011)
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4 Figure 3.
K. Saban et al. Sourcing strategy: Methods Low
Unique Strategies •
•
Number of available suppliers
Strategic Strategies
Cost analysis—reverse pricing Standardize requirements
• •
Generic Strategies • •
Cost analysis Collaborative cost— reduction efforts focused on total costs
Commodity Strategies
Total delivered cost Automate to reduce purchasing involvement
•
•
Leverage preferred suppliers Price analysis using market forces
High Low
Value
High
Source: Monczka, Hand eld, Giunipero, and Patterson (2011)
modular, and relational. Each category requires a different level of SCC and therefore a different mix of people, process, and technology. 2.2.1. Market exchanges
Market exchanges are formed to generate an ef cient means to facilitate low value transactions such as purchasing cleaning materials or general maintenance services. The collaboration requirement is low due to the low level of information ow required to facilitate these types of transactions. People resources are low as management normally makes all the go/no-go decisions. Process resources are moderate as they are used to facilitate data exchange and task alignment. Technology resources are high as they are used to manage large ows of data (explicit) information. It is common practice to use an arm’s-length supply chain strategy. This type of strategy is adversarial in that the supplier normally has to bear most of the costs while the buyer realizes most of the bene ts. Therefore, suppliers are thought of as being kept at arm’s length.
resources are moderate as they are used to facilitate ow of explicit information. Information technology resources are high as they are used to distribute explicit data between partners. An adversarial collaborative supply chain strategy is often used in these situations. Given the important role of these relationships, proprietary systems are required to transfer high levels of information and as such demand a long-term commitment from both the buyer and supplier.This exchange requires more dependency on the right supply chain processes and less on direct employee involvement. 2.2.3. Relational exchanges
Modular exchanges are formed to improve the
Relational exchanges are formed to create value added partnerships through complex intellectual property or resource exchanges. To be successful, both parties accept the fact that each will make dedicated investments in the exchange. Some refer to this state as the holy grail of supply chain relationships. The collaboration requirements are high due to the extreme level of information ow and employee interactions. Therefore, people resources are high as employees from all organizations are involved in complex problem solving and tacit in-
acquisition of material/services from key suppliers who make signi cant investments to maintain the business. The collaboration requirements are moderate due to a higher level of information ow and employee interactions. People resources tend to be lower as supply management works to create a de facto position of supplier dominance. Process
formation exchange. Process resources are equally high as they are used to facilitate high levels of tacit/explicit information. A collaborative supply chain strategy is most often used in these buyer/ seller relationships. Based on this discussion we can draw several conclusions. First, all supply chain exchanges are
2.2.2. Modular exchanges
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An integrated approach to managing extended supply chain networks not created equal when one considers the value and criticality of the project. As such, each buyer-seller relationship has to be treated independently. Second, the level of SCC varies depending on the complexity of the exchange or project. This variance requires that a different mix of people, processes, and technology must be created and properly applied. Third, as buyer/seller relationships require a high level of SCC, the role of human collaboration is greatly enhanced due to the exchange of tactic and explicit information exchange between internal and external parties. It is clear that matching the right supply chain strategy with the right buyer-seller relationship is a complex task that in turn places a major burden on the person responsible for orchestrating the extended supply chain network. The next section will discuss a method for matching the right supply chain strategy with the proper buyer-seller relationship.
2.3. Supply chain strategies The primary reason for having a supply chain strategy is to establish how a rm is going to work with supply chain partners, including suppliers, distributors, customers, and even rm customers’ customers (Happek, 2005). Table 1 helps managers match the right supply chain strategy with the right supply chain partnership (Cohen & Roussel, 2005; Cox, Watson, Lonsdale, & Sanderson, 2004; Coyle Table 1.
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et al., 2008; Spekman, Kamauff, & Myhr, 1998; Whipple & Russell, 2007). It addresses several fundamental questions: 1. What are the different types of supply chain exchanges? 2. What are the collaboration requirements for each buyer-seller relationship? 3. How do the collaboration requirements alter the mix/weight placed on people, processes, and technology? 4. What supply chain strategy best ts each buyerseller relationship? Armed with the information presented in Table 1, supply chain managers cannot only select the proper supply chain strategy (arm’s-length, adversarial collaborative, or collaborative), but also adjust the mix/weight of the three resources (people, processes, and technology). Both will facilitate the free ow of explicit and tacit information within and across their extended supply chain networks as well as better engage key employees. Our hope is that this framework will start to peel back the mystery involving SCC, which in turn will improve the effectiveness of extended supply chain networks.
Relationship strategy framework Transactional collaboration
Cooperative collaboration
Improve the acquisition of materials/services from key suppliers
Complex collaboration
Create value-added exchanges through complex intellectual property or resource exchanges Relationship Adversarial or Non-adversarial Adversarial Non-adversarial or strategy arm’s-length strategy arm’s-length strategy collaborative strategy collaborative strategy People Employee Employee Employee Employee involvement: involvement: low involvement: low involvement: high Management makes Management works to moderate Complex problemgo/no-go decisions create a de facto Joint decision-making solving requires high position of supplier on traditional makelevel of tacit dominance source-buy projects information exchange Process Processes used to Processes used to Processes used to Processes used to facilitate data facilitate ow of facilitate ow of facilitate high levels of exchange and task explicit information: explicit information tacit/explicit alignment: moderate moderate and knowledge: high information: high Technology Technology used to Technology used to Technology used to Technology used to manage large ow of distribute explicit data distribute explicit data support employee data/explicit between operations/ between operations/ decision making: information: moderate units: high units: high moderate Business goal
Generate an ef cient Improve the means to facilitate low acquisition of routine value transactions materials or services
Coordinated collaboration
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6 In order to validate the fact that relational exchanges–—which are more prevalent with extended supply chain networks–—require more human collaboration than market and modular exchanges, we conducted a eld test among key supply chain decision markers. The next section discusses the results of this study.
3. Collaboration eld study To investigate the perceived importance of human collaboration efforts in meeting an organization’s strategic supply chain goals and to assess current company performance with respect to human collaboration, we conducted a eld study of key decision makers. The focus group for this study was a cross-section of supply chain professionals in a wide variety of industries. The results of this study strongly suggest that human collaboration is indeed a critical factor in achieving an organization’s supply chain goals, and most of the respondents felt that their companies currently fall short of attaining full collaboration with their supply chain partners. This eld study was organized around in-depth telephone interviews with the potential subjects using a questionnaire based on our previous research in benchmarking human collaboration efforts. The Allegheny Marketing Group conducted the interviews and attempted to contact 2,195
K. Saban et al. Table 2. Demographic breakdown of participants Industry Segment
Automotive Construction Heavy Manufacturing Aviation Mass Merchandising Computers/High-Tech Military/Defense Respondent Title
Purchasing Manager Logistics Manager Supply Chain Manager President General Manager Other Company Size (# of Employees)
Large (More than 1,000) Medium (250–—1,000) Small (Fewer than 250) Operating Revenue
eld study
Percentage of Respondents
24% 18% 18% 17% 16% 4% 3% Percentage of Respondents
48% 15% 11% 6% 5% 15% Percentage of Respondents
17% 32% 51% Percentage of Respondents
Greater than $1 Billion $100 Million to $1 Billion
34% 29%
$10 Million to $99 Million $1 Million to $9 Million Less than $1 Million
28% 9% 0%
potential respondents obtained from their own internal databases and some external sources for each target segment. Eligible participants had to have at least 2 years of experience working in supply chain management and they had to work for a company employing at least 50 workers. Out of these 2,195 potential subjects, 101 completed the interview, with most of the companies’ contacts failing to participate because the appropriate respondent was not available to take the call. The 101 respondents in the study comprise a true cross-section of industries and supply chain functions as shown in Table 2. Almost half of the respondents were purchasing managers, while the others ran the gamut from physical distribution responsibilities to company presidents. The most common industry was the automotive industry, but the study included representatives from construc-
appear to be signi cantly biased toward one industry, one supply chain management function, or one rm size. The eld study was able to capture participation from signi cant decision makers in the supply management area. Approximately half of the respondents had 20 or more years of experience in the supply chain management eld. Their current companies stretched from the srcinal equipment manufacturer level to raw material and service suppliers, giving the study the perspective of many echelons in the supply chain. Almost all of the
tion, heavy manufacturing, aviation, and consumer goods, among other industries. Half of the companies had between 50 and 250 employees, but there was signi cant representation from larger companies as well. The annual revenue for the respondents’ companies ranged from $1 million to over $1 billion. Consequently, the survey data does not
respondents claimed that their regular responsibilities include supplier selection, supplier development, and collaboration with suppliers. This ensured that the respondents are well versed in supply chain collaborative practices and made them credible authorities on the effect of collaboration with suppliers in their businesses.
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An integrated approach to managing extended supply chain networks The rst part of the interview focused on establishing the supply chain goals of the respondents’ organizations. The two highest-rated supply chain goals were lowering operating costs and improving customer service, which are consistent with the existing body of research and pedagogy on the supply chain management eld. The ratings received by these two goals were signi cantly different from the next-highest rated goal of increasing revenue, suggesting that these companies are still primarily focused on reducing costs instead of enhancing the organization’s revenue. Contemporary supply chain research has shown that innovative supply chain practices can simultaneously accomplish both tasks, especially considering the way that improved customer service can lead to increased revenue (Presutti & Mawhinney, 2013). One interesting facet of the data showed that raw material suppliers, in contrast to companies at the other echelons of the supply chain, particularly wanted to increase revenue. Approximately 75% or more of the respondents said that their organizations were successful in achieving these three goals in the current year. After discussion of the supply chain goals, the questionnaire focused on the role of human collaboration speci cally. The interviewers asked the respondents to rank three factors–—technology, business practices, and human collaboration–—with respect to their importance in helping the organization achieve its supply chain goals. The respondents ranked human collaboration as the most important factor at a statistically signi cant difference compared to business processes and technology. Even though they identi ed it as the most important factor, 58% of the respondents said that their companies’ collaborative efforts could be signi cantly improved. The questionnaire also asked the respondents to rank the organizational and personnel factors that contribute to human collaboration. The group overwhelmingly identi ed company leadership as the most important organizational factor that affects a rm’s ability to collaborate, with the company’s planning process and trust level following far behind. The respondents did not identify a single most important personnel factor leading to human collaboration; there was a pretty even split between a person’s communication skills, knowledge of supply chain and business processes, and motives to collaborate. While this and other studies have established that human collaboration impacts an organization’s ability to achieve its supply chain goals, the degree to which a rm collaborates can be dif cult to characterize and measure objectively. Of the
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respondents interviewed, 87% said that it was important to measure human collaboration efforts and they identi ed the ability to work with others to achieve very high goals as the most important measurable factor contributing to human collaboration. They acknowledged that an employee’s ability to communicate with management and peers was important as well. The major result of this eld study was to establish that human collaboration not only affects but also is essential to a rm’s ability to meet its supply chain goals. It was also striking that while the respondents identi ed it as the most important factor compared with business processes and technology, the majority felt that their own rms had signi cant opportunities to improve their collaborative abilities. We believe that many other organizations currently experience a similar gap and stand to gain a competitive advantage in their market if they can improve their collaboration competencies.
4. Limitations and future research direction As is the case with all research studies, our survey results have several limitations. The survey response rate could have been higher to enable us to identify statistically signi cant differences between the responses from different industries or organizations of different sizes. The survey respondents were also limited to one speci c geographic area (Western Pennsylvania in the U.S.); as a result, the conclusions may not be generalized to include organizations located internationally or in other parts of the U.S. In the future, this collaboration eld study could be extended in a number of ways. The existing questionnaire could be administered to more companies located in more geographically-diverse areas to establish more universal insights. It would also be interesting to use the questionnaire to conduct a longitudinal study to investigate the evolution of collaborative activities in supply chains through the years. Detailed qualitative case studies with speci c companies would help to delve deeper into the proliferation of particular collaborative activities and the critical success factors that enable collaboration to ourish.
5. Conclusions and implications It is a well-accepted fact that to succeed in the 21st century, businesses need to construct highly ef cient and effective supply chain networks that
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involve a broad array of external partners. Unfortunately, only a small number of companies have mastered the ability to achieve high-level collaboration among its external partners. This reality has left many managers perplexed on how to proceed, especially given the heavy attention given the new collaboration tools. To achieve high levels of SCC, management must rst understand what it is and how it is achieved. SCC is best achieved when autonomous organizations successfully integrate their resources (people, processes, and technology) to achieve a common goal. This allows the right people to connect with the right expertise or information at the right time to drive the right business decision. Secondly, as all buyer-seller relationships are not created equal, management also needs to: (1) categorize the nature of each product/service purchased in relation to risk and value; (2) de ne the importance of the available suppliers in relation to the products/services provided; (3) match the right supply chain strategy with the right type of buyer-seller exchange (market, modular, and relational); and (4) recognize that each supply chain strategy requires a particular mix of resources (people, processes, and technology). The fact that people can play an equal if not greater role than technology is signi cant given all the attention that has been directed at today’s new collaboration tools. Once this process is mastered, management will
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