supply chain management-definition, growth and approaches.pdf

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Supply Chain Management: Definition, Growth and Approaches Author(s): Paul D. Larson and Dale S. Rogers Source: Journal of Marketing Theory and Practice, Vol. 6, No. 4, Supply Chain Management

Sponsored by SYNCRA Software, Inc (Fall, 1998), pp. 1-5Published by: M.E. Sharpe, Inc.Stable URL: http://www.jstor.org/stable/40469931Accessed: 16-08-2014 14:23 UTC

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SUPPLY CHAIN MANAGEMENT: DEFINITION, GROWTH AND APPROACHES

Paul D. Larson University of Nevada, Reno

Dale S. Rogers University of Nevada, Reno

WHAT IS SUPPLY CHAIN MANAGEMENT (SCM)?

The Supply-Chain Council defines SCM as the "effort involved in producing and delivering a final product from the supplier's supplier to the customer's customer" (Kranz 1 996). In Macro-logistics, Stein and Voehl (1998) define SCM as: "The systematic effort to provide integrated management to the Supply Value Chain in order to meet customer needs and expectations, from suppliers of raw materials through manufacturing and on to end-customers." Lambert, Stock, and Ellram (1998) use the term "supply chain" to represent an alignment of firms. They define SCM as "the integration ofbusiness processes from end user through original suppliers that provides products, services, and information that add value for customers." All these definitions focus on supply chain actors or institutions, such as suppliers and customers.

Other definitions emphasize SCM activities. For instance, Quinn ( 1 997) states that "the supply chain encompasses all of those activities associated with moving goods from the raw- materials stage through to the end user." These activities include: procurement, production scheduling, order processing, inventory management, transportation, warehousing, and customer service. Quinn also quotes Professor LaLonde, who defines SCM as: "The delivery of enhanced customer and economic value through synchronized management of the flow of physical goods and associated information from sourcing to consumption."

In an early definition, from 1989, Copacino (1997) uses the terms logistics and SCM synonymously, stating: "Logistics and supply chain management refer to the art of managing the flow of materials and products from source to user. More recently, the consensus seems to be that SCM is more than logistics. According to Johnson and Wood (1996), "supply- chain management is somewhat larger than logistics." Logistics essentially assumes cooperation between buyers, suppliers and service providers. SCM considers additional behavioral dimensions between actors, such as conflict, dependence and power. Logistics strives to minimize total cost while serving customers. SCM is concerned with profitability of serving customers-and customers' customers. Finally, the focus of logistics is often intra-organizational, while SCM is inherently inter-organizational.

Another definition, developed by The International Center for Competitive Excellence in 1 994 and used by Cooper, Lambert and Pagh (1997), is as follows: supply chain management is the integration ofbusiness processes from end user through original suppliers that provides products, services and information that add value for customers. Supply chain management is not just another name for logistics. It includes elements that are not typically included in a definition of logistics, such as information systems integration and coordination of planning and control activities.

Cooper, et al (1997) identify the following seven business processes of supply chain management: customer relationship management, customer service management, demand

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management, order fulfillment, manufacturing flow management, procurement, and product development and commercialization. Some of these processes are not among the traditional logistics activities. Most contain activities that firms generally consider to be part of the marketing effort. For example, new product development and commercialization are outside that management domain of logistics executives. However, close coordination between supply chain managers and product developers is critical to the successful roll-out of new products.

The term "SCM" has been criticized. Tompkins and Jernigan (1997) argues that "supply chain management" is a misnomer, and should be replaced with "demand flow leadership." He specifies three problems with SCM- the words "supply," "chain" and "management." "Supply" implies a push philosophy, while "demand" denotes a pull approach to product flow, for better customer service and lower inventory levels. The word also underscores the derived nature of demand for logistics services. Furthermore, the word "chain" (which implies a focus on individual links or players in the chain) should be replaced by "flow." The latter word is said to indicate continuous movement and an integrated approach to end user satisfaction. Finally, "leadership" is preferred rather than "management," as it implies teamwork, cooperation and a dynamic approach to harnessing the energy of change. Perhaps DFL and SCM are like heads and tails, respectively, of the same coin.

Sherman (1998) differentiates between the "demand chain," which creates demand, and the "supply chain," which fulfills it. He defines SCM as a "dynamic process of managing the flow of material and information across distributed business processes for the purpose of profitably responding to and satisfying market demand."

A blend of these ideas yields the following definition: supply chain management (SCM) is the coordination of activities, within and between vertically linked firms, for the purpose of serving end customers at a profit

SCM Growth

LaLonde (1998) observes SCM growth through numbers of sessions at the annual Council of Logistics Management (CLM) meetings with "Supply Chain" in the title. During the last three years, 1995-97, these numbers rose from 13.8 percent to 22.4 percent of total track sessions.

Another indicator of SCM growth is the number of articles on the subject published in business and management periodicals. Among the "SilverPlatter" databases is ABI/INFORM. Beginning in 1971, ABI/INFORM covers approximately 1,000 business and management periodicals.

The database contains over 550,000 citations with abstracts to published articles. Thus, SCM growth can be taken as the number of citations on "SCM," year-by-year, in ABI/ INFORM. Table 1 shows the growth of SCM from 1980 to 1997. Note that the first SCM article in an ABI/INFORM periodical appeared in 1985. By 1997, the number of articles rose to 147.

Table 1 SCM Articles Published, 1980-1997

Year Number 1980 0 1981 0 1982 0 1983 0 1984 0 1985 2 1986 0 1987 2 1988 5 1989 4 1990 4 1991 8 1992 9 1993 24 1994 42 1995 73 1996 121 1997 147

Source: www.silverplatter.com. ABI/INFORM searched by publication year for "Supply Chain Management."

In 1997, SCM saw several significant events. The Supply- Chain Council was incorporated as a not-for-profit trade association (see www.supply-chain.org). Two new journals, Supply Chain Management: An International Journal and the Supply Chain Management Review, published inaugural issues. Two other academic journals, Interfaces and the Journal of Marketing Theory and Practice, put out special issue calls for papers. More recently, the Journal of Retailing issued a call for papers on "Creating and Delivering Value through Supply-Chain Management."

Moreover, some maje* universities have changed the names of their programs from logistics management or purchasing management to "supply chain management." In 1997, Michigan State University consolidated their Marketing and Logistics Administration department with many of their Operations and Purchasing professors into a new department

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called Marketing and Supply Chain Management. In 1998, Arizona State University established a Supply Chain Management department by merging purchasing, operations and logistics faculty, along with a few others.

APPROACHES TO SCM

Based on their underlying methods, common approaches to SCM can be organized into three categories: technological, relational and analytical. Technological approaches are driven by advances in computer technology, while relational programs start by changing relationships within and between firms. Analytical programs are driven by tools and procedures to study customers, competitors, suppliers, and the firm itself.

Analytical approaches to SCM include benchmarking and activity-based costing (ABC). According to Cooke (1996), benchmarking "provides a tool for managers to measure their distribution operations against those of companies that stand out from the crowd for their mastery of supply-chain management." Nearly two-thirds (64.8%) of respondents to a recent survey of customer service enthusiasts were involved with benchmarking (Rogers, Daugherty and Stank 1995). Another survey, of quality control professionals, found 85/159 or 53.5 percent of responding firms to have implemented benchmarking programs (Larson and Sinha 1995). Williams- Walton (1996) notes that logistics organizations using ABC "analyze the activities performed in the logistics process, and then determine the costs of performing these activities." Williams' survey of transportation and logistics people found significant use of ABC in the following areas: transportation, warehousing and purchasing.

Carrier reduction, single sourcing, and outsourcing or third- party logistics (3PL) are relational approaches to SCM. Carrier reduction is a performance improvement program in which a shipper spreads its freight movement volume among fewer transportation providers. A recent survey of logisticians found 64.6 percent (135/209) to be involved in reducing the number of carriers hired (Larson, in press). The ultimate end of a carrier or supplier reduction program is single sourcing-narrowing the base down to one provider. Single sourcing implies multiple suppliers or service providers are available, but the buyer selects and is using only one supplier.

The terms "outsourcing," "contract logistics," and "third party logistics" are essentially synonymous in the logistics lexicon. At a minimum, they are often used together. Shippers outsource logistics functions, on a contractual basis, from third parties. (Logistics involves the movement and storage of goods, as well as the management of information. The seller and buyer of those goods are the first and second

party, respectively.) Several benefits of outsourcing logistics functions are discussed in the literature. It is thought that third party providers can offer greater expertise, lower costs, and improved service to shippers (Maltz 1 994; Daugherty and Droge 1997). Third party providers are also believed to facilitate cooperation in the supply chain (Troyer and Cooper 1995).

Several technological approaches to SCM are: electronic data interchange (EDI), the Intarnet, a.k.a. world wide web (WWW), and enterprise resource planning (ERP). To be precise, the Internet provides a public access information infrastructure, while the WWW is a commercial venue for publication of information across the Internet. Crum and Allen (1990) define EDI as "the computer-to-computer exchange of business documents such as bills of lading, invoices, and purchase orders." Nearly 44 percent of respondents to their survey indicated use of EDI. A more recent survey, of Canadian logisticians, found 146/209 or 69.9 percent of responding firms to be implementing EDI (Larson, in press). Despite EDI' s growth, there is increasing speculation in logistics circles that the Internet may be a more flexible, less expensive alternative (Harler 1996). Growing use of the Extended Markup Language (XML) on the Internet may make EDI obsolete, due to XML's flexibility of context versus strict EDI transaction formats.

The key advantage of the Internet and WWW over EDI is their enabling of human intervention to resolve SCM contentions. Traditional applications of SCM technology have not taken into account different perspectives and knowledge based on actors9 positions in the supply chain. For instance, a retailer has greater proximity to and knowledge of local market conditions, in terms of consumers and competitors, as compared to a manufacturer. These different positions in the supply chain imply differences in demand planning assumptions and results. Demand planning differences among the actors leads to a supply chain not synchronized-and build-ups of excess inventory.

Sales of enterprise resource planning (ERP) systems, the next stage in MRPII evolution, are expected to reach $20 billion by the year 2001 (Friscia 1997). MRPII adds finance and marketing considerations to the basic materials requirements planning (MRP) production and inventory control systems (Johnson and Wood 1996). Eastman Kodak Co. selected SAP's R/3 ERP software "to present a single face to the customer and create one set of business processes, regardless of location." With ERP, Kodak plans to ultimately integrate the following business processes: order-to-cash, final assembly, finance, procurement, human resources, process manufacturing, quality management and service management (Stevens 1997).

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While ERP integrates many activities, Sherman (1997) suggests it falls short as a tool for SCM. He argues that traditional ERP focuses only on supporting financial and manufacturing/demand fulfillment processes, and has just recently expanded into logistics process support. Further, traditional ERP fails to support demand creation processes, such as research and development, marketing research, marketing and sales. The recent proliferation of new firms offering sales force automation suggests the emergence of a new "best of breed" market. ERP systems must support key business requirements based on position in the supply chain- e.g. retail, service, manufacturing, etc.

WELCOME TO THE SPECIAL ISSUE

Twenty-two manuscripts were submitted for possible publication in the SCM special issue of the Journal of Marketing Theory and Practice. Eight of these appear below, for an acceptance rate of 36.4 percent. The issue includes four analytical articles, four relational articles and one (invited) technological article. However, two of the analytical papers are linked to technology in terms of software use or development.

In the lead-off article, "Collaborative Planning, Forecasting & Replenishment (CPFR): Realizing the Promise of Efficient Consumer Response through Collaborative Technology," Rich Sherman describes how new technologies enable supply chain managers to strengthen relationships between organizations. It is the linkages between firms that are most often the weakest portion of the supply chain. CPFR appears to be a way to truly realize the potential of Efficient Consumer Response (ECR) that many consumer product firms were so excited about in the early and mid 1990s. Rich's article was invited by the editors.

The analytical articles start with Amy Zeng's optimization model, which integrates two important SCM decisions: number of sources and lot size. A nonlinear programming algorithm is developed to minimize total costs, subject to meeting budget constraints and product/service quality standards. Biggs, Li and Rogers use simulation and experimental design to study the impact of back-orders on SCM performance, in a material requirements planning (MRP) environment. Backorders occur when stock is not available, and orders are placed against future capacity. While marketing may use backorders as a sales tool, production recognizes them as a scheduling challenge. The article demonstrates the impact of backorders interjected into the master production schedule (MPS) too early- lower sales and higher costs. Thus, marketing and production must work together to serve downstream customers.

Vokurka and Lummus model the impact of another type of sales tool on supply chain performance. Using promotion, the marketing department stimulates erratic demand. Sales increase, but supply chain costs- of servicing an unstable sales rate- also rise. The model develops supply chain total costs of marketing decisions, as well as incremental income due to promotion. It is important to look beyond direct promotion costs to determine the success of a campaign. In the fourth and final analytical article, Ronald Tibben-Lembke discusses reverse logistics in terms of the total cost of ownership (TCO) framework. SCM typically focuses on the forward flow of goods, from producer to consumer. However, some-times things go the wrong way, e.g. the case of products returned by consumers. An effective reverse logistics system can reduce TCO, and make a supply chain more competitive.

Ashwin Joshi leads off the relational articles by asking: "how and why do relatively dependent manufacturers resist supplier power?" Survey research results reveal that manufacturers resist when relational norms are low, but do not resist when relational norms are high. The most interesting SCM implication from this work centers on interdependence. SCM implies greater levels of interdependence between firms. However, if this interdependence is asymmetrical, a power imbalance rises which may destabilize the supply chain.

Phillips, Liu and Costello look beyond the dyad, in applying Heider's '"Balance Theory" to a supply chain triad (manufacturer, dealer, and consumer). Using a laboratory experiment, these authors study loyalty relationships within the triad. Results suggest that manufacturer satisfaction with the dealer can be enhanced by both dealer and consumer loyalty to the manufacturer. Thus, manufacturers have an incentive to work with dealers in developing consumer loyalty. This reinforces the SCM concept of looking beyond the customer, to the customer's customer.

A third relational article is written by Bert Keilerman. Mail survey results show that U. S. intra-state trucking deregulation increases motor carrier flexibility in meeting shipper needs. Greater flexibility of transportation service can oily facilitate SCM. Thus, transportation deregulation is a silent partner in SCM. The survey results also suggest that rural locations tend to have a negative impact on transit time and on-time delivery.

A final relational article, by Morash and Clinton, lodes at SCM in an international context. Different nations (and cultures) seen drawn to different perspectives on SCM. This study is part of the ongoing Global Supply Chain Best Practices Research being conducted at Michigan State University.

So, welcome to the special issue! We hope the following articles will stimulate discussion and further research in the exciting area of supply chain management.

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REFERENCES

Cooke, James A. (1996), "Benchmarking 101," Logistics Management (October): 71-73.

Cooper, Martha C, Douglas M. Lambert and Janus D. Pagh (1 997), "Supply Chain Management: More Than a New Name for Logistics,79 International Journal of Logistics Management, 8(1): 1-14.

Copacino, William C. ( 1 997), Supply Chain Management, Boca Raton, FL : St. Lucie Press.

Crum, Michael R. and Benjamin J. Allen (1990), "Shipper EDI, Carrier Reduction, and Contracting Strategies. Impacts on the Motor Carrier Industry," Transportation Journal, 29(4): 18-32.

Daugherty, Patricia J. and Cornelia Droge ( 1 997), "Organizational Structure in DivisionaJized Manufacturers: The Potential for Out-sourcing Logistical Services," International Journal of Physical Distribution & Logistics Management, 27(5): 337-349.

Friscia, Tony (1997), "ERP- The Goldrush Continues," Manufacturing Systems, 15(1): 22.

Harler, Curt (1996), "Logistics on the Internet: Freeway or Dead End?" Transportation & Distribution (April): 46-48.

Johnson, James C. and Donald F. Wood ( 1 996), Contemporary Logistics, 6th ed., Upper Saddle River, NJ: Prentice Hall.

Kranz, Steven (1996), "What Is It?" Purchasing Today (October): 4.

LaLonde, Bernard J. ( 1 998), "Supply Chain Management by the Numbers," Supply Chain Management Review, 2(1): 7-8.

Lambert, Douglas M, James R. Stock and Lisa M. Ellram (1998), Fundamentals of Logistics Management, Boston: Irwin/McGraw-Hill, p. 504.

Larson, Paul D. and Ashish Sinha (1995), "The TQM Impact: A Study of Quality Managers' Perceptions," Quality Management Journal, 2(3): 53-66.

Larson, Paul D. (in press), "Carrier Reduction: Impact on Logistics Performance and Interaction with EDI," Transportation Journal.

Malte, Arnold B. (1994), "The Relative Importance of Cost and Quality in the Outsourcing of Warehousing," Journal of Business Logistics, 15(2): 45-62.

Quinn, Francis J. (1997), "What's the Buzz?" Logistics Management (February): 43.

Rogers, Dale S., Patricia J. Daugherty and Theodore P. Stank (1995), "Benchmarking Programs: Opportunities for Enhancing Performance," Journal of Business Logistics, 16(2): 43-63.

Sherman, Richard J. (1997), "Dynamic Demand Management: Striking a Profitable Balance," Supply Chain Management Review, 1(2): 68-75.

Sherman, Richard J. ( 1 998), Supply Chain Management for the Millennium, Oak Brook, IL: Warehousing Education and Research Council.

Stein, Martin and Frank Voehl (1998), Macrologistics Management, Boca Raton, FL: St. Lucie Press, p. 263.

Stevens, Tim(1997), "Kodak Focuses on ERP," Industry Week (August IS): 130-135.

Tompkins, Jim with Brenda Jernigan (1997), Goose Chase: Capturing the Energy of Change in Logistics, Raleigh, NC: Tompkins Press.

Troyer, C. and R. Cooper (1995), "Smart Moves in Supply Chain Integration," Transportation & Distribution (September): 55-62.

Williams Walton, Lisa (1996), "The ABC's of EDI: The Role of Activity- Based Costing (ABC) in Determining EDI Feasibility in Logistics Organizations," Transportation Journal, 36(1): 43-50.

AUTHOR BIOGRAPHY

Paul D. Larson (Ph.D., University of Oklahoma) teaches logistics, purchasing, and supply chain management at the University of Nevada, Reno. From 1990-%, he taught marketing and retailing at the University of Alberta. Dr. Larson has published over 25 articles in the leading logistics/marketing journals. His current research interests include: supplier/carrier certification and reduction, communication technology in buyer/supplier relationships, third-party logistics services, and supply chain performance improvement methods.

AUTHOR BIOGRAPHY

Dale S. Rogers (Ph.D., Michigan State University) is the Director of the Center for Logistics Management and an Associate Professor of Marketing and Logistics at the University of Nevada. Prior to entering the doctoral program, Dale worked as a Project Director and Director of Marketing for a logistics consulting and software company. He has also been employed in materials management and manufacturing at the Harris Corporation, and as an instructor with the Oldsmobile Division of General Motors. Dale has published in several logistics journals and is the co-author of Going Backwards: Reverse Logistics Trends and Practices and two previous books on logistics.

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Article Contentsp. 1p. 2p. 3p. 4p. 5

Issue Table of ContentsJournal of Marketing Theory and Practice, Vol. 6, No. 4 (Fall, 1998) pp. 1-122Front MatterSupply Chain Management: Definition, Growth and Approaches [pp. 1-5]Collaborative Planning, Forecasting &Replenishment (Cpfr): Realizing the Promise of Efficient Consumer Response through Collaborative Technology [pp. 6-9]Single or Multiple Sourcing: An Integrated Optimization Framework for Sustaining Time-Based Competitiveness [pp. 10-25]The Effects of Back Ordering on Performance: Marketing and Production Cooperation in Supply Chain Management [pp. 26-40]Balancing Marketing and Supply Chain Activities [pp. 41-50]The Impact of Reverse Logistics on the Total Cost of Ownership [pp. 51-60]How and Why Do Relatively Dependent Manufacturers Resist Supplier Power? [pp. 61-77]A Balance Theory Perspective of Triadic Supply Chain Relationships [pp. 78-91]The Impact of 1994's Further Deregulation of the Trucking Industry: The Rural Shippers' View [pp. 92-103]Supply Chain Integration: Customer Value through Collaborative Closeness versus Operational Excellence [pp. 104-120]Back Matter

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