Structuring the Supply Chain

A supply chain is a collection of activities and processes. In a manufacturing company, these include manufacturing, distribution, customer service, and selling functions. In many organizations and supply chains, these activities and processes may be little more than independent entities. There is little integration and consistency of purpose from one process or activity to another. 

Michael Porter, Harvard Business School professor and a thought leader on strategy, maintains that linked activities and processes are especially resistant to competitive pressures. He refers to these linked activities as activity systems. We believe the concept of activity systems has valuable application in SCM. This is because a well-linked supply chain is one type of activity system. 

Porter also emphasizes that in any market, operations effectiveness, usually measured by cost reductions, can only go so far. This philosophy is also consistent with the observation that you can t save your way to success. In 

Both Fisher s (Chapter 6) and Porter s frameworks support the idea that the supply chain is fundamental to competitive success. Certainly, products with superior features and design contribute greatly. But innovation in the supply chain dimension is likely on the same level as product design as a determinant of long-term success. So supply chain design has the power to extend the profitable life of the product. 

Many organizations pursue supply chain designs with the sole intent of reducing cost. In keeping with our theme that supply chains offer competitive 

A case study for a company we refer to as Acme illustrates how to construct an activity system for innovative and functional products. Acme had long manufactured a widely used line of aircraft fasteners, a product category in which Acme was a pioneer and technical leader. In fact, many of Acme s competitors were licensees of its technology. 

Customers respected Acme for the quality of its product but usually based their purchase decisions on price and availability. All suppliers, licensees who had become Acme competitors, were certified to quality standards. Unlike its rivals. Acme maintained technical services to support its technologies. But quality and technical services — while desirable — seemed to carry little weight in most purchasing decisions. 

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The supply chain is usually divided into tiers (or stages, or echelons). Each tier consists of units with the same general functionality. The concept of tier should be treated with care, however, as differentiation between tiers is often fuzzy and units can belong to multiple tiers. That has become even more profound as supply chains assume networked structures. Still, tiers help structure the supply chain configuration problem and facilitate identification of common features of supply chain units. The typical supply chain tiers, which can be further decomposed, are... 

Food safety and quality strategies shaping and structuring the supply chains... 

The diagram shows that decision categories needn t be limited to supply chain or pure logistics issues. At this point in the effort, it s important to have an overall business context for structuring the supply chain effort. 

The project group designed a questionnaire with 286 questions, structured to cover each substep of all the types of major steps encountered in the supply chains. If an enterprise covered more than one major step, this meant that more than one interview was carried out, with more than one person or more interviews with the same person. For each enterprise, the interviewees typically answered 150-200 questions about 1-3 major steps. The questions were designed by experts to describe the principles and intentions of the... 

In another setting, the human players are provided with global information about the system. This means that all players are informed about inventory levels and orders placed for each of the components of the supply chain. Furthermore, they are encouraged to work out co-operative strategies to deal with the dynamics of the system. Compared to the local information structure, this usually results in lower inventory levels and less out-of-stock-situations for all participants. Typically, the stocks and the number of orders in this setting are much lower, resulting in much lower costs for operating the supply chain and lower costs for each player as well. 

The figures mentioned in this section are sufficient to describe the as-is state of the supply chain. Establishing and discussing these figures lead to first ideas of potential enhancements of the supply chain regarding the structure of the supply chain and the process flow. 

A perfect structure and process flow does not necessarily mean that the supply chain is performing well. For this purpose, key performance indicators and the drivers for the economic value added (EVA) are calculated. 

Corsten points out that a supply chain is a special type of network composed of multi-level logistic chains owned by legally separated companies. The focus in the supply chain is the coordination of flows of materials and information between these companies. Corsten s examples show the supply chain structure starting with raw materials up to the final consumer (Corsten/Gossinger 2001). 

While the previous illustrations are focused on the intra-company supply chain structures, inter-company structures of the supply chain are related to Porter s value chain as shown in fig. 5 (MeyrAVagner et al. 2004, p. 113 based on Rohde/Meyr et al. 2000). 

Here, it can bee seen that system modules are not directly matched to process structures defined in the Supply Chain Planning Matrix. Also, the asymmetry between market facing parts of procurement and sales are not intuitive. However, APS extend the perspective on business applications extending the classical tasks of ERP and transactional systems to a management and planning level. With APS implemented in multiple industries and validated specifically in the process industry (Schaub/Zeier 2003) or also for Small and Medium Enterprises (SME) (Friedrich 2000), importance will further grow. 

The framework is mainly based on the supply chain management framework of Rohde et al. (2000). Rohde s work is gradually enhanced to address the aspects of synchronized decision making within the value chain and the integration of supply, demand and value management concepts as shown in fig. 17. The framework is structured into the areas value chain, processes and methods. 

The Supply Chain Operations Reference (SCOR ) model is a reference model for supply chain planning and operations processes as well as performance management developed by the cross-industry organization Supply Chain Council (SCC) started in 1996 (Supply Chain Council 2006 reviewed by Siirie/Wagner 2004, pp. 41-49). The SCOR model structures... 

Value planning and the integration of company s profit and loss structure with supply chain management is not addressed often artificial penalty costs are applied in models to steer results instead of actual cost parameters from controlling... 

The behaviour of the individual actors in the chain is in turn affected by both internal and external structures and factors. For example employers, employees, purchasing departments for substance input and waste management for output as well as the various specialised divisions in companies using chemical products thus pursue entirely different interests and strategies. A central concern of the SubChem project was how the interaction of all actors inside and outside the supply chain can accelerate or hamper innovations. 

Hypothesis (11) The substance users ability to be innovative does not solely depend on the size of the enterprise, but also just as much on the organisational structure of the enterprises as well as their position in the supply chain, for example. 

The political requirement within Europe, that the industry should be responsible for the assessment of the 30,000 substances currently on the market and their applications is in line with the voluntary commitment of responsible care by the chemicals industry. Implementation of this -commitment has so far failed because many users of chemical products have not complied with it. The REACH system proposed by the EU Commission would create a regulative framework for structuring responsibility and information flow along the supply chain, in a binding marmer for the first time. The commercial institutions should respond to this state initiative. 

Figure 5.2 General structure of an international fragrance company around the supply chain (adapted from Curtis and Williams, 1995)...

The perception of a state of crisis may be a chance to cope with the structural problems of the industry, and with the main aspects that are posing crucial questions to the industry operators, at any level of the supply chain. 

Supply chain management is a comprehensive concept capturing objectives of functional integration and strategic deployment as a single managerial process. Figure 1 depicts the supply chain structure. 

This structure has been in place for decades. Even when the manufacturing activity takes place in minutes, the final delivery of a product may take days, weeks, or months, depending on the efficiency of the supply chain. The operating objectives of a supply chain are to maximize response, minimize variance, minimize inventory, maximize consolidation, maintain high levels of quality, and provide life-cycle support. 

The supply chain structure is the network of members and the links between members of the supply chain. Business processes are the activities that produce a specific output of value to the customer. The management components are the managerial variables by which the business processes are integrated and managed across the supply chain. In combination, the SCM definition and this new framework move the SCM philosophy to its next evolutionary stage. 

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