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Supply chain management
Supply chain management (SCM) is the
term used to describe the management of
the
flow
of
materials,
information,
and
funds
across
the
entire
supply
chain,
from
suppliers to component producers to
final assemblers to distribution (warehouses and
retailers), and ultimately to the
consumer.1 In fact, it often includes after-sales
service
and
returns
or
recycling.
In
contrast
to
multiechelon
inventory
management,
which
coordinates inventories at multiple
locations, SCM typically involves coordination of
information and materials among
multiple firms.
Supply chain management
has generated much interest in recent years for a
number
of managers now realize that
actions taken by one member of the chain
can
influence
theprofitability
of
all
others
in
the
chain.2
Firms
are
increasingly
thinking in terms of competing as part
of a supply chain against other supply chains,
rather than as a single firm against
other individual , as firms successfully
streamline
their
own
operations,
the
next
opportunity
for
improvement
is
through
better coordination
with their suppliers and customers. The costs of
poor coordination
can be extremely
high. In the Italian pasta industry, consumer
demand is quite steady
throughout the
year.
SCM typically involves
coordination of information and materials among
multiple
chain
management
has
generated
much
interest
in
recent
years
for
a
number
of
reasons.
However,
because
of
trade
promotions,
volume
discounts,
long
lead
times,
full-
truckload
discounts,
and
end-of-quarter
sales
incentives
the
orders
seen
at
the
manufacturers
are
highly
variable
(Hammond
(1994)).
In
fact,
the
variability increases in
moving up the supply chain from consumer to
grocery store to
distribution center to
central warehouse to factory, a phenomenon that is
often called
the bullwhip effect
Supply Chain Management
Concerns
A key element of
successful SCM involves the downstreamintegration
of business
customers as well as
themanagement of upstream suppliers. However,
integratingthe
entire value chain is
acomplex undertaking. Organizations encountering
problems due
to increased reliance on
suppliers may reverse their downsizing emphasis
and bring
outsourced products and
services back in-house,secure alternative sources
of supply,
or
work
with
existing
suppliers
to
increase
their
performance
and
capability
(Watts
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and Hahn
1993). Alternatively, firms can use supplier
evaluation to identify specific
supplier deficiencies and to develop
plans to address them (Krause 1997). While it is
beneficial
to
recognize
the
specific
practices
that
result
in
successful
SCM
implementation,
it
is
also
helpful
to
understand
the
primary
concerns
hindering
a
successful
supply
chain.
The
primary
goal
of
identifying
these
concerns
was
to
provide
practitioners
with
a
list
of
issues
that
adversely
impact
firms’
performance
and
appropriate
actions
that
could
be
taken.
To
operationalize
this
construct,
nine
commonly cited concerns
that restrain successful SCM were identified (see
Table IV)
based
on
interviews
and
discussions
with
practitioners
during
plant
visits
and
professional
meetings.
Once
again,
the
SCM
concerns
were
not
organized
in
any
order or categorized in
the survey instrument. The concerns included
cooperation and
trust
among
supply
chain
members,
information
capability,
competition,
and
geographical proximity.
Performance Measures Economists disagree about the
use of
accounting data to measure firm
performance because it ignores opportunity costs
and
the
time
value
of
money
(Chen
and
Lee
1995).
They
have
argued
that
business
performance
should
be
measured
by
financial
data
(e.g.,
internal
rate
of
return).
Financial
data
provides
a
measurement
of
a
firm’s
performance
via
the
market’s
valuation
of
the
firm’s
securities.
However,
since
future
cash
flows
of
the
business
entity cannot be
observed, measures of business performance are
typically based on
accounting data
(e.g., return on investment [ROI] or return on
assets [ROA]). While
Jahera
and
Lloyd
(1992)
observed
that
ROI
was
a
valid
performance
measure
for
midsize
firms,
Tobin
and
Brainard
(1968)
challenged
its
validity
as
a
performance
measure. A
firm’s financial leverage can affect its ROI
to
such a degree that it renders
comparisons between firms meaningless.
ROI also ignores opportunity costs and the
time
value
of
investments.
An
alternate
measure
of
performance,
Tobin’s
q
ratio,
evaluates the ratio of the market value
of a firm to the replacement cost of its assets
(Tobin 1969). However, the prospect of
obtaining accurate measures of ea
ch
firm’s
market value and the replacement
cost of its assets to calculate Tobin’s
q was deemed
impractical
for
this
research.
Given
the
lack
of
consensus
regarding
a
valid
crossindustry
measure
of
corporate
performance,
performance
in
this
study
was
opera
tionalized
by
senior
management’s
perceptions
of
a
firm’s
performance
in
comparison
to
that
of
major
competitors.
This
research
adopted
three
of
the
nine
performance measures
used in Tan et al. (1998b). The measures are
overall product
quality, competitive
position, and customer service levels.
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Survey
Methodology
A
survey
instrument
in
the
form
of
a
questionnaire
wasdesigned
based
on
the
constructs
previously
dents
were
asked
to
indicate,
using
a
five-
pointLikert scale, the importance of the 25
practices (1 = low, 5= high) in their
firm’s SCM efforts. For questions
regarding
SCM concerns, respondents
were asked
to
indicate,
on
asimilar
five-
point
Likert
scale,
the
likelihood
that
the
nine
issues
prevented their firm
from achieving the full potential of SCM. To
elicit information
on performance,
respondents were asked to indicate, using a
similar five-point Likert
scale, their
company’s performance relative to
that
of major industry competitors in
terms
of
overall
product
quality,
overall
competitive
position,
and
overall
customer
service
levels.
Some
other
questions
including
demographics
information
were
also
presented in the questionnaire. The
survey instrument was pretested by 30 supply and
materials managers for content
validity. Where necessary, questions were reworded
to
improve validity and clarity.
The
pretest
questionnaires
were
not
used
for
subsequent
analyses.
The
revised
survey instrument
was sent
to
1,500
supply
and
materials
managers identified from
the
Institute for Supply Manage
ment? (ISM)
(formerly the National
Association of
Purchasing
Management)
membership
list.
Firms
represented
by
these
individuals
were
from
Standard
Industrial
Classification
(SIC)
20
to
39.
The
respondents
represented
manufacturers of food and kindred products,
tobacco products, textile mill
products, apparel and other textile
products, lumber and wood products, furniture and
fixtures,
printing and
publishing, chemicals
and
allied products,
petroleum
and coal
products, rubber
and plastics products, leather and leather
products, fabricated metal
products,
industrial
machinery
and
equipment,
electronic
and
other
electric
equipment,
transportation
equipment,
and
miscellaneous
manufacturing
industries.
Two
mailings
and
a
follow-up
reminder
yielded
101
usable
returned
surveys.
A
second
phase of the survey targeting 3,000
supply and materials managers identified from the
American
Production
and
Inventory
Control
Society
(APICS)
was
conducted.
The
first APICS survey was mailed on
October 1, 1999, and the follow-up postcards were
mailed two weeks later. The final
reminder with a complete, identical questionnaire
was
mailed
on
November
1,
1999.
The
last
usable
survey
was
received
in
the
first
quarter of 2000. Two
mailings and a follow-up reminder yielded a total
of 310 usable
surveys.
The
combined
ISM
and
APICS
surveys
resulted
in
a
response
rate
of
9.1
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percent (411
responses). Subsequently, t-tests were conducted
to
compare the sales,
number
of
employees,
and
responses
to
the
relevant
survey
questions
between
the
ISM and APICS data.
The analysis did not reveal any
statistical difference between the two
populations.
Therefore, results of the
two surveys were combined.
Supplier Selection
A
variety
of
evaluation
procedures
are
possible;
there
is
no
best
method
or
approach. The important thing is to
make certain that some procedures are used. The
manager
must
identify
all
potential
suppliers
for
the
item(s)
being
purchased.
The
next
step
is
to
develop
a
list
of
factors
by
which
to
evaluate
each
supplier.
Management can use
the variables mentioned in this text or develop
another list. Once
the factors have
been determined, the performance of individual
suppliers should be
evaluated on each
factor (e.g., product reliability, price, ordering
convenience).
After
evaluating
suppliers
on
each
factor,
management
must
determine
the
importance of the factors to its
particular situation. If, for example, product
reliability
is
of
paramount
importance
to
the
firm,
that
(actor
will
be
given
the
highest
importance
rating.
If
price
was
not
as
important
as
product
reliability,
management
will
assign
price
a
tower
importance
rating.
Any
factor
that
is
not
important
to
the
firm will be assigned a
zero.
The next step is to develop a
weighted composite measure for each factor. This
is
done by multiplying the supplier's
rating for a factor by the factor's importance.
The
addition of the composite scores
for each supplier provides an overall rating that
can
be compared to other suppliers. The
higher the composite score, the more closely the
supplier meets the needs and the
specifications of the procuring company.
In principle, this kind
of analysis is
not
completely new to
purchasing
managers.
Many
decisions
in?
volve
balancing
one
type
of
variable
or
characteristic
against
another. What is new
and valuable about this approach, however, is that
it makes the
process of weighing
variables explicit: Because it forces us to
formalize the important
elements
of
the
purchasing
decision,
it
helps
us
bring
our
tacit
assumptions
to
the
surface and questions
our intuitive or habitual priorities.
The
process
of
suppler
selection
is
more
difficult
when
materials
are
being
purchased
in
international
markets.
However,
more
firms
are
buying
raw
materials,
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