Supply Chain Performance Measurement & E-Business Supply Chain Management: Including a Practical Excursus on the Intel Case
Operations Strategy – Supply Chain Management
Research Paper (undergraduate) 2010 30 Pages
Table of Content
2 INTRODUCTION AND RESEARCH PURPOSE
3 THE UNDERLYING CONCEPT OF SUPPLY CHAIN MANAGEMENT
3.1 Supply Chain Management as a Success Factor
3.2 Definitions and Objectives
4 SUPPLY CHAIN PERFORMANCE MEASUREMENT
4.1 Concept of Performance Measurement
4.4.2 The Balanced Scorecard
5 THE RELATIONSHIP BETWEEN ERP, SCM & E-COMMERCE
6 E-BUSINESS IN SUPPLY CHAIN MANAGEMENT
6.2 Electronic Supply Chain Management
6.2.2 IT in Supply Chain Management
6.2.3 The Impact of IT on Supply Chain Integration and Performance
6.2.4 Critical Success Factors for Inter-organizational Information Systems
7 CASE STUDY: INTEL & ROSETTANET
7.1 RosettaNet as an example for an E-SCM system
7.2 Implementation of RosettaNet at Intel
The environmental surroundings of most companies have changed radically in recent years. Especially the competitive pressure has risen substantially over the past decades, fuelled by an increased globalization of markets and supply chains. In order to continuously satisfy consumer needs in a timely manner, organizations have to focus on performance and efficiency improvement measures. In terms of supply chain management, performance includes the three dimensions efficiency, effectiveness and flexibility which have to be dealt with on an equal basis. One mean to improve supply chain performance is the linkage between various IT applications involved in the whole supply chain. These efforts and trends are treated under the term electronic supply chain management (E-SCM). There are three major critical success factors for the successful operation of an electronic supply chain. These can be clustered into decision motivation (e.g. a shared vision and a strong motivation), implementation process (e.g. the tight integration of inter-organizational information systems and the re-engineering of inter-organizational business processes) and infrastructure conditions (e.g. agreement upon a shared industry standard). There are numerous benefits of an E-SCM implementation such as increased communication speed and decreased cost in terms of communication, inventory and customer service. Furthermore, E-SCM allows mitigating the bullwhip effect by improving the availability of information throughout the entire supply chain. In addition E-SCM allows organizations to implement an entirely pull-based approach. One downside of E-SCM is the need to make a company’s entire business processes transparent, also towards supply chain partners who might be engaged with competitors. A further danger of E-SCM is to over-rely on speed rather than on flexibility.
2 Introduction and Research Purpose
The surrounding conditions of most companies have changed radically in recent years. They have become dynamic, unpredictable and turbulent. The competitive pressure has increased enormously, not at last by the internationalization of the markets. Many domestic and foreign companies are fighting with their products for consumers and offer them a growing, almost infinite variety. The goal of satisfying as fast as possible the needs of consumers, led in recent years to a race that resulted in shorter product life cycles and clock speeds. These trends mean that the products and the underlying value chains are more and more driven by consumer wishes.
Today, in times of crises and weak economic growth, companies in addition are especially forced to maintain or increase profit through efficiency. Time, quality and cost are three success factors that can determine the success or failure of companies. The logistics and the supply chain influence these factors in a great way. It has a significant weight in ensuring that customized products can be offered with functionality, quality and in an appropriate timeframe at competitive prices. The alignment of the company with the ambition to reduce inventory and reduce cycle times, connected to servicing customer needs timely has resulted in the development of the concept of supply chain management (SCM). SCM deals with the coordination of in-house order processing and the inter-company supply chain and thus goes beyond the internal business perspective. The success of a company and its competitiveness will depend on the cooperation with the companies that are in the same value chain or from the same network. The consideration of only internal organizational and process structures alone is not enough for companies to stay in the market anymore.
This paper gives a systematic introduction to the fundamental concepts of supply chain and supply chain management. In the first part it presents the principles of supply chain management and its integration into the business processes. The role of E-Businesses in Supply Chain Management and the underlying challenges as well as success factors will be presented in the second part. A case study on the practical example of Intel implementing the E-Supply Chain solution RosettaNet forms the third and final part before finishing in the conclusion.
3 The underlying concept of Supply Chain Management
3.1 Supply Chain Management as a Success Factor
Companies are not operating in isolation but are members of supply chains, which comprise a whole network of suppliers and customers. Today's competition is less between individual companies but more between entire value chains (Corsten und Gabriel 2004, 4). Advances in information and communications systems and the globalization of markets, foster the desire of reducing the depth of added value within a company. The use of outside services and the therefore consequent decline in in-house productions are common developments by national and international companies. Instead of local and internally oriented optimization, it is important to consider the entire value chain in the overall sense of a global optimization. This is making the overall company processes more complex, leading to a higher coordination effort for the necessary cooperation’s. At the same time, the requirements increase, especially in terms of timely satisfaction of needs within each value chain. Therefore the need for an effective linkage, through information and communication systems (using state of the art technology), between all supply chain partners is essential. All these requirements can be met by fostering a proactive management of the whole supply chain.
3.2 Definitions and Objectives
Compared to the emergence of many other management approaches SCM was not initiated by academics, but arose from needs in practice. In the 1980s, an American consulting firm used the concept of SCM for the first time. In 1990, the scientific debate about SCM began the first time with Cooper and Ellram as they worked with the differences of traditional concepts of material flow, logistics and related information sets (Stommel 2003, 19f). The definition of the concept of SCM is very problematic. The discussion of many authors regarding the definitional classification of SCM as part of the logistics, logistics management or as a stand-alone concept illustrates the problematic (Stommel 2003, 21). German literature recognizes the supply chain management mainly as an object of logistics. A representative of this view is among others Prof. Dr. Dietger Hahn: “Supply chain management is the planning, management and control of the entire material and service flow, including the related information and money flows within a network of companies and their areas under successive stages of the value chain in the development, production and cooperate recovery of material goods and/or services in partnership to achieve effectiveness and efficiency” (Hahn 2000, 1065). Therefore supply chain management is one the most important measures for logistics planning and execution.
Supply Chain Management has the task to realize advantages in competition for all parties along the value chain. Competitive advantages can be based mainly on cost reduction throughout the supply chain, and improvements to the (end) customer service for example. The aim of managing the supply chain is to achieve a balance between the goals of high customer-service and low inventory-investment which are often seen as a conflict (Kaluza und Blecker 1999, 123). Furthermore, it is important to note that a supply chain not only consists of different member organizations (see Figure 1) but at the same time creates an organizational system itself (Skjott-Larsen, et al. 2007). Especially the increased globalization and new technologies make it possible for companies to benefit from the integration in supply chains instead of following a vertical integration strategy, i.e. owning suppliers or customers. According to the pull-perspective, the supply chain starts with the customer from which all decisions origin (Skjott-Larsen, et al. 2007).
Figure 1: Illustrative and simplified supply chain process/organizational system
illustration not visible in this excerpt
Having defined supply chains, it is relevant to briefly introduce the challenges of supply chains. The integration of several member organizations in one supply chain with their own objectives imposes challenges on managing the supply chain as a whole (Skjott-Larsen, et al. 2007). This is also due to the fact that there is usually no formal organization managing the supply chain (Aulinger 2003, 225).
The ultimate goal of any supply chain must be to manage uncertainty in demand with the existing supply capabilities. (Bayraktar, et al. 2008, p. 194) To achieve that goal, firms have to implement demand forecasting procedures. However, these forecasts are generally not accurate while individual entities along the supply chain increase the inaccuracy with “economical batching decision”. (Bayraktar, et al. 2008, p. 195) This information “distortion in customer demand between orders to suppliers and sales to the buyer” (Bayraktar, et al. 2008, p. 193) is termed the bullwhip effect.
Performance measurement represents a further management issue in supply chains. According to the definition by the Council of Supply Chain Management, Supply Chain Management (SCM) ‘ encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers(Skjott-Larsen, et al. 2007, 21). This definition comprises not only the specific activities one typically has in mind but also emphasizes the aspect of coordination. That is especially relevant as members of the supply chain follow their own objectives. Since independent decisions can lead to conflicts, the task of supply chain management is to foster integration. Due to the perspective that a supply chain creates a system itself (Skjott-Larsen, et al. 2007), SCM comprises the management of all decisions for this system.
As one solution to overcome these challenges in supply chain management, the recent approach of electronic supply chain management (E-SCM) will be elaborated on in the following chapters in a theoretical manner. Later, in chapter 7 one E-SCM solution will be explained at the example of Intel.
4 Supply Chain Performance Measurement
4.1 Concept of Performance Measurement
After having defined the concept of SCM, this section will focus on supply chain performance measurement, a particular management issue in supply chains.
Neely, Gregory and Platts (1995) define performance measurement as ‘the process of quantifying the efficiency and effectiveness of action' (p.80). Performance measurement is frequently mentioned as an important management task to achieve objectives (Ackermann, 2003). However, the question that arises is what actually comprises supply chain performance. In 1992 Langley and Holcomb in (Hald 2007) assign supply chain management the role of supporting the creation of customer value. This is in line with the pull-perspective defined above, with all decisions stemming from the final customer. Consequently, (Hald 2007) argues that supply chain performance should assess to what extent the supply chain is currently delivering customer value and also outline how it could be improved. Furthermore, performance in a supply chain includes the three dimensions of efficiency, effectiveness, and flexibility (Hald 2007). Emphasis is put on the importance of measuring supply chain performance, while at the same time pointing to shortcomings of current practice within this field.
While performance measurement refers to the general management task, a performance measurement system is implemented to support this task. This is defined by (Neely, Gregory and Platts 1995, 81) as ‘the set of metrics used to quantify both the efficiency and effectiveness of actions.' One mean to improve supply chain performance is the linkage between the various IT architectures of the different partners involved in a supply chain, as the concept of E-SCM proposes.
A supply chain performance measurement system could help to reduce inefficiencies in the supply chain and increase performance (Holmberg 2000). These inefficiencies often occur since firms pursue their own interests and maximize their own performance (Ackermann 2003). While some authors refer to the alignment of incentives, possibly monetarily aligning goals via a performance measurement system can be seen as another mean. The performance measurement system has the potential to define and measure what is relevant to reach the common goal of supply chain optimization (Narayanan 2004).
Performance measurement systems in supply chains face the same problems as performance measurement systems on organizational levels (Holmberg 2000). A missing link between strategy and measures, a focus on financial measures and having too many isolated measures, include major points of criticism by different authors (Gunasekaran, Patel und McGaughey 2004). A missing customer focus is also mentioned. This is critical in particular in light of the pull-perspective on supply chains as mentioned above, i.e. that the customer represents the beginning of the supply chain.
In addition to these general performance measurement problems, further complications arise in a supply chain context. This is due to the characteristics of supply chains, as spanning across organizational boundaries. One major challenge is the lack of system thinking in measuring supply chains. Due to the characteristics of supply chains it is essential to adopt a cross-organizational perspective (Shepherd und Günter 2006). Since supply chains create an organizational system itself (Skjott-Larsen, et al. 2007) managers should adapt a perspective of the whole entity. Nevertheless, managers tend to focus on activities within their own company (Hald 2007). A main reason for this is that cross-organizational performance measurement involves activities which managers cannot completely control and which are complex. In order to reveal problems in the supply chain, it is reasonable to measure activities which cannot be controlled directly.
Additionally incentive systems on organizational levels might explain why managers tend to focus on the performance of their own organization. These internal incentives system might thereby lead to individuals’ behavior that is in conflict with supply chain objectives (Holmberg 2000).
While it is complex to understand how activities in a supply chain are linked, the coordination is extremely important. A lack of understanding of these inter-relations - a lack of perceiving the system as a whole - represents problems for the design of performance measurement systems (Shepherd und Günter 2006).
It is useful to illustrate the problems of incomplete performance measurement systems which fail to comprise the entire supply chain. Integration might span the entire supply chain or only a part. In terms of performance measurement, problems arise if there is a discrepancy between the integration of supply chain flows and what is captured by a performance measure- ment system. This represents a possible performance measurement system, e.g. on an organizational level or on a department level. The system is only including part of the integrated activities, not measuring complete performance and thus cannot provide useful information to optimize the entire flow.
Even if managers begin to measure activities that cross organizational boundaries, the goal frequently remains to measure the individual company’s performance and not supply chain performance. Due to the challenges mentioned in this section, companies are currently far from this stage. In order to integrate these inter-organizational activities among the supply chain partners, the greatest challenge remains to harmonize the information flow and foster system integration. A solution to this challenge will be discussed in detail in chapter 6.
(Hald 2007, 322) defines a supply chain performance measurement framework as a ‘method or philosophy designed to measure certain dimensions of supply chain performance ’. This implies that not necessarily one single framework provides a complete picture of supply chain performance.
(Hald 2007) presents a number of frameworks for supply chain performance measurement. Especially supply chain management - involving inter-organizational activities - requires a multi-dimensional perspective on performance (Ackermann 2003). Therefore this chapter will not discuss cost-oriented frameworks but will instead focus on two frameworks; the SCOR-model and the Balanced Scorecard (Hald 2007). While the SCOR-model was developed in a supply chain context, the Balanced Scorecard was originally developed as an intra- organizational management tool.
The SCOR-model ‘is designed as a tool to describe, measure, and evaluate any supply chain configuration’ (Hald 2007, 341). It includes five processes: Plan, Source, Make, Deliver and Return (Hald 2007) and was developed to improve supply performance by measurement (Holmberg 2000). The model provides a standardized categorization for analyzing supply chain performance based on processes and can also be used for benchmarking. Furthermore it introduces a common language, which facilitates communication across the supply chain (Holmberg 2000). Standard metrics for performance measurement along the processes have also been developed.
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- European School of Business Reutlingen – Business Adminstration
- Operations Strategy Supply Chain Supply Chain Management Performance Measurement Supply Chain Performance Measurement E-Business E-Commerce Logistics Rosetta Net E-SCM SCM Intel Intel Case ERP SCOR E-Business in Supply Chain Management Operations Management