Introduction Some 25 years ago, one of the authors wrote an article (Stevens, 1989) that sought to
Some 25 years ago, one of the authors wrote an article (Stevens, 1989) that sought to explicate the state-of-the-art in supply chain management (SCM). This was at a time when SCM was still in its infancy and only starting to gain currency as an area of interest for practitioners and academics (Oliver and Webber, 1982). At the time, the organizational functions involved in managing the availability of products and satisfying customer orders operated with relative independence, often with conflicting agendas. The purpose of the original article was to facilitate understanding and encourage organizations to exploit the potential for managing their supply chains as part of a joined up (integrated) whole.
The original article addressed the need to manage the supply chain at the strategic, tactical, and operational levels as well as recognizing that the scope of an organization’s supply chain extended to the furthest reaches of its network of customer and supplier relationships. Stevens (1989) posited that achieving a state of “integration” required a firm to progress through a number of defined stages of development. The stages identified at the time and illustrated in the original article are shown in Figure 1. As Figure 1 shows, the original article argued that SCM developed from a baseline of functional (independent) silos and the first level of integration was across functions (akin to process integration). This then moved to full internal integration involving a seamless flow through the internal supply chain, and finally to external integration embracing suppliers and customers. The primary benefits were identified as improved customer service and reduced inventory and operating costs. Since the original article, much has changed. The world today is more complex and turbulent (Christopher and Holweg, 2011). The reach of many supply chains has increased in pursuit of growth and low-cost sourcing (Fredriksson and Jonsson, 2009). Technological advances have fueled the development of new business models and ways of working ( Johnson and Mena, 2008). The advent of new and maturing supply chain strategies (Christopher and Towill, 2002), tools and techniques, together with increased environmental and ethical concerns (Pagell and Wu, 2009) has increased the recognition of SCM as a driver and enabler of business performance ( Johnson and Templar, 2011). This has lead to the adoption of new supply chain practices that have elevated the role of SCM within many organizations. While much has changed, the fundamental need for “joined up” thinking and working and the need to integrate the supply chain has not. Gartner Supply Chain Group (O’Marah and Hofman, 2010), place integration as one of the elements of creating a demand-driven supply chain strategy that leads to improved firm performance (Ellinger et al., 2011, 2012). Thus, the need for SCI is still the same, if not greater than before.
Supply chain integration
Early on in the development of SCM, firms realized the limitations of isolated improvement initiatives and misaligned functional performance agendas and began managing internal processes and flows on a much more integrated basis (Stevens, 1989). This extended the scope of integration to include upstream suppliers and downstream customers. Since the original article, there has been a growing consensus concerning the importance of integrating internal processes and flows, suppliers, and customers (e.g. Tan et al., 1998; Frohlich and Westbrook, 2001). Despite research confirming the positive benefits of supply chain integration (Prajogo and Olhager, 2012), and its importance to a firm’s success (Flynn et al., 2010), ambiguity remains as to what constitutes supply chain integration (Fabbe-Costes and Jahre, 2008; Autry et al., 2014).
SCI is characterized by “joined up thinking, working, and decision making,” underpinned by principles of flow, simplicity, and the minimization of waste. SCI may be enabled by systems and technology such as e-commerce (Gunasekaran and Ngai, 2004), Manufacturing Resource Planning (MRPII), Enterprise Resource Planning (ERP) (Bagchi et al., 2005), and RFID (McFarlane and Sheffi, 2003), but SCI is not just about technology. Integrating the supply chain refers as much to the need for strategic and operational integration within and across the business (Swink et al., 2007) as it does to relational integration with customers and suppliers (Benton and Maloni, 2005). The scope of SCI therefore includes governance, organization structure, systems, relationship management, business strategy, process design, and performance management.
The evolution of SCM
SCM as a discipline has evolved rapidly. The early focus of SCM began when organizations began to improve their inventory management and production planning and control. The aim of these practices was to improve production efficiencies and ensure that the capacity of capital assets and machinery was utilized efficiently. This extended upstream to include the management of transport of raw materials at a time when firms were relatively vertically integrated. The next phase in the evolution of SCM was the systematization of materials, production, and transport management. This began with materials requirement planning (MRP) focussing on inventory control (Orlicky, 1975). MRP expanded to become MRPII by incorporating the planning and scheduling of resources involved in manufacturing. Both MRP and MRPII were conceived in the 1960s but did not gain prominence until the 1980s (Wight, 1981). MRP and MRPII evolved to become ERP, in an attempt to gain greater visibility over the entire enterprise. The mid to late 1980s brought intense retrospection from western firms concerning the threat of Japanese firms that were perceived to be more competitive due to higher productivity (Hayes and Wheelwright, 1984). This period led to the implementation of “Japanese” practices such as total quality management (TQM) and lean (Womack et al., 1990) by firms. These practices focussed on reducing inventory through improving quality and flow and involving suppliers in product and process design. The next phase in the evolution of SCM included the introduction of other process improvement practices (e.g. six sigma) that sought to provide a more concrete improvement method compared to TQM or lean (Montgomery and Woodall, 2008). As process improvement, and the standardization of products and processes that facilitated it, took place, there was increasing awareness that end customers were requiring ever increasing levels of choice and differentiation (Christopher, 2000). This led firms to consider that they had become too lean and rigid and should be focussing on creating agile supply chains to adapt to changing demand (Aitken et al., 2002). The agile approach was blended with lean (Naylor et al., 1999) as demand could be decoupled into push and pull to create greater choice for the customer while still retaining some control (van Hoek, 2001). The 1990s also saw a focus upon core competences within firms (Hamel and Prahalad, 1990). This led to a rise in increased outsourcing of non-core activities to lower cost economies. Political factors such as unilateral liberalization measures and the removal of formal free trade barriers have contributed to the growth of developing countries exporting to high wage economies (Gereffi, 1999), encouraging firms to source from lower cost economies. This, in turn, fuels both demand for products from developed economies and the competition to supply. This changed the topology of the supply chain as well as the magnitude, profile and direction of material, and information flows.
Supply chain strategic imperatives
There are two major strategies to winning business: differentiation and cost advantage (Porter, 2008). Historically, the focus for securing differentiation has been product differentiation. With life cycles now measured in months, sometimes weeks, rather than years, the opportunities to secure sustained benefit through product differentiation are diminishing. Even when a product-based-strategy prevails, the window of opportunity for maximizing profit is becoming shorter and more difficult to hit such that a minor disruption to product availability has a major impact on financial return. The supply chain has, therefore, become either the driver or critical enabler for differentiation. The role of the supply chain as a major driver of cost has long been recognized. Up to 75 percent of a product’s cost is external to the focal firm (Trent, 2004). The supply chain, therefore, also offers considerable opportunity for delivering cost advantage. In addition to securing differentiation and cost advantage the supply chain has taken on two further strategic imperatives arising from the need to ensure resilience, responsiveness, agility, and flexibility in an increasingly turbulent and uncertain world. Typically, the supply chain accounts for 50 percent of a company’s assets. These comprise both fixed assets such as buildings and machinery as well as current assets such as inventory. Assets, by their very nature prescribe a limited range of working patterns and methods, thereby exposing an organization to significant changes in market structure. The nature and configuration of the asset base, the balance of fixed assets to current assets, and the profile of inventory and cash all influence the resilience of the supply chain and influence a firm’s ability to mitigate risk. At an operational level, customers are becoming increasingly demanding in terms of both responsiveness and flexibility. Accordingly, the agility of the supply chain, in terms of structure, management, systems, and processes impacts directly the ability of an organization to respond to customer needs. The role of the supply chain and the focus for SCM can therefore, be summarized as to support an organization to win business competitively by addressing the strategic imperatives of differentiation, cost advantage, resilience, and dynamism (agility, flexibility, responsiveness). In the following section we discuss how these strategic imperatives, together with their drivers and enablers, influence the way in which the supply chain is configured and managed.
SCM development model
The principle of integrating the supply chain as a cornerstone of SCM was introduced in the early 1980s. Since then the business context has changed and the structure of Pursuit of low-cost sourcing based on structural adjustment to the supply base Characterised by: Resulting in: Leading to increased: • Longer (global) reach. More links Mulit-tiered relationships Mulit-partnering/ sourcing Transient relationships Diluted influence Complexity Uncertainty Instability Reduced visibility Information delays and distortion Communication degradation Reduced ability to plan, and control Increased volatility in demand and supply Increased “turbulence” Leading to increased Supply Chain risk Complexity x x uncertainty Instability Supply Chain risk = Risk of Supply Chain disruption Changes to the supply base Figure 5. The compound effect of the relentless pursuit of low-cost sourcing 28 IJPDLM 46,1 SCOMs has developed accordingly. The limitations of supply chain models based on “linear” physical flows have been exposed (e.g. Choi and Wu, 2009c; Bastl et al., 2012) and new phases of networked supply chains have developed. Figure 6 suggests the need to add two further stages to the development model proposed by Stevens in 1989. The additional stages are predicated on the need for integration but reflect the changes in context and capabilities. The transition between phases represents the point at which the extant phase begins to show diminishing returns for the focal firm. Internal supply chain integration transitioned to external supply chain integration as there was a limited amount of performance improvement that could be achieved without involving suppliers and customers. External supply chain integration transitioned to goal directed network supply chains as firms understood that supply chains were non-linear networks and that there would be benefit for non-strategic (or non-integrated) suppliers to have visibility of demand. We suggest that – at the time of writing – we are undergoing a transition to devolved, collaborative supply chain clusters. We suggest that this transition is occurring due to the increased complexity, risk and costs that are being borne by focal firms who are attempting to manage large networks. By effectively outsourcing elements of this management to lead suppliers, there is devolvement of the collaboration into clusters. Clusters are smaller networks that are more easily managed. For example, Zara has popularized the localized, collaborative cluster model (cf. Ghemawat, 2005) although this model currently has a tendency to be implemented in industries with relatively simple products or services, or around a single industry (e.g. Silicon Valley).
Internal integration represents the evolution of a firm’s SCOM from the functional separation of the 1970s to a model based on the “closed loop” business and resource planning of the late 1980s. Functional separation was characterized by individual functions having their own agendas with limited interaction resulting in high unit costs, high levels of inventory, and poor customer service. The objective for most supply chains was inventory management based on aggregate inventory, stock replenishment using re-order point, and economic order point techniques with limited recognition of the needs of production plans or customer demand. At this time the focus for SCM was to balance supply and demand within the constraints of the business plan. The scope of the supply chain model included commercial, production, technical, purchasing, finance, and materials management and was underpinned by joined up thinking, working, and decision making.
External integration involves extending the scope of the integrated supply chain to include supplier integration, distribution integration, and customer integration. Supplier integration focusses on improving the performance of the supply chain between a firm and its supply base. It involves sharing information between both parties enabling a firm to influence costs, quantities and timing of deliveries and production in order to streamline the product flow and to move to a collaborative relationship. Supplier integration often involves a partnership model, with deeper, more long-term relationships with fewer vendors that, in turn, tend to have relationships with fewer customers. This helps build communication channels and trust, which facilitates more extensive knowledge sharing. Supplier integration involves suppliers taking increased responsibility for aspects of availability and product development. It involves increased interactions between businesses and functions to increase productivity and availability and reduce the risk of non-compliance. Distribution integration focusses on detailed resource and flow management through the outbound logistics network in order to reduce logistics and distribution costs and provide increased demand visibility. The focus moves away from the efficient management of transport to planning and controlling the efficient forward and reverse flows and storage of goods and related information as part of an integrated supply chain. Customer integration involves leveraging the supply chain’s capabilities as part of the customer proposition and a firm collaborating with customers to add value to both parties. The cornerstones of supply chain customer collaboration are cultural and process integration, whereby both parties contribute their unique insights and capabilities to develop a mutually agreed forecast of demand that meets the needs of the customer, within the constraints of the firm. Customer integration is well operationalized by Collaborative Planning, Forecasting, and Replenishment (CPFR). The benefits of CPFR are well documented, typically in the order of a 10-40 percent inventory reduction in supply chains (Lapide, 2010). Despite the benefits of internal and external integration, the wider business landscape has changed resulting in the need to conceptualize the new SCOMs of goal directed networked supply chains and devolved, collaborative supply chain clusters.
The current challenges presented by a global economy, accelerating rates of change, and the emergence of new and innovative competitors will undoubtedly persist. The role of the SCM as an enabler of business success will not go away. It is more likely that the pressure on the supply chain will increase. SCM’s response needs to first, find a more effective way of aligning thinking and practice and accelerating the flow of promising practices across the supply network. Second, address the challenge of ever increasing complexity. Changes to supply chains over the next quarter of a decade will be driven by changes in the business environment, technology, economies, and customer preferences. There is no doubt that the business environment will become even more volatile, uncertain, complex, and ambiguous (cf. Bennett and Lemoine, 2014). As such, supply chains need to be configured to navigate the future environment and will move ever closer to becoming complex adaptive systems (cf. Choi et al., 2001). We are also seeing a rise in technologies that have promise for tomorrow’s supply chains and the democratization of product and process knowledge (Anderson, 2012). These include big data and additive manufacturing technologies such as 3D printing (Brennan et al., 2015).
I suggest that the SCOM of the future will be atomized, adaptive fulfillment communities. They will be atomized – rather than clustered – because the need for, and intensity of, collaboration will increase leading to smaller, less intense clusters which we class as communities. The relationships within these communities (i.e. atomized clusters) will be underpinned by shared norms, values, and behaviors. They will be adaptive to both supply and demand as well as being reactive and pro-active to wider geo-political, business, economic, environmental, and social factors. The networks of the future will also be democratic to supply and demand, hence our use of the term “fulfilment.” Integration will be philosophical and driven by behaviors, insight and information, not processes and systems. SCM and SCI have undergone rapid evolution over the past quarter of a century, we look forward to the next 25 years.