CHAPTER II

LITERATURE REVIEW
2.1 Introduction
This chapter explains, categories and synthesizes literature pertaining to the
Supply Chain Management (SCM). The identify antecedents and consequences of
SCM, and we propose the boundaries of SCM in terms of supply chain orientation
and supply chain integration. We also provide a comprehensive elaboration of
different supply chain practices such as, flexible supply chain, lean supply chain and
agile supply chain. Finally, we conclude this chapter with identifying different
barriers to effective supply chain management and also benefits and competitive
advantages that can be derived from an effective supply chain management.
2.2 The Conceptualization of Supply Chain, Supply Chain Orientation and
Supply Chain Management
Throughout the 1980s and 1990s, many American firms tried to integrate their
logistics management with the idea that close collaboration between the functions
involved in logistics activities can produce high levels of service and performance
while reducing the total costs and higher productivity (Oliver and Webber, 1982).
The supply Chain Management (SCM) concept has evolved during this period
of time and is now prevailing in both academia and practice. Lambert et al. (1998)
observed that the term SCM was originally introduced by consultants in the early
1980s, since the early 1990s, academics have attempted to give structure to SCM.
Despite the short history of this field, the literature on SCM is growing rapidly
(Larsen and Rogers, 1998). Shapiro (2001) points out that, SCM incorporates
concepts from several management disciplines such as strategy formation and the
theory of the firm, logistics, production, inventory management, management
accounting, demand forecasting, marketing management and operations research.
Since then, researchers from numerous disciplines have incorporated supply
chain thinking into their research programs making it a multi-disciplinary field
(Lancioni et al., 2001) as for example Strategic Management (Bechtel and Jayaram,
1997; Christopher and Ryals, 1999; Ketchen and Giunipero, 2004; Rodrigues et al.,
2004; Tan et al., 2002), Purchasing and Supply Management (Cavinato and

17

Kauffmann, 1999; Jahns, 2005; Kaufmann, 2001; Leenders et al., 1994; Stuart, 1997),
Marketing (Christopher, 2005; Min and Mentzer, 2004; Svensson, 2002, 2003), Interorganizational Relationships Research (Golicic and Mentzer, 2005; Skjoett-Larsen,
2003; Walter et al., 2007), Organization Theory (Kim, 2007) and Operation
Management (Khouja, 2003)- to name a few only.
The definitions of SCM, however, differ by different authors, Tyndall et al.
(1998) defined logistics and SCM as the art of the managing the flow of materials and
products from source to user. Ellram and Cooper (1990) defined supply chain
management as a management philosophy. LaLonde (1997) defined it as a
management

process.

Even

identical authors conceptualized supply chain

management differently. Cooper and Ellram (1993) conceptualized SCM as a form of

integrated system between a vertical integration and separate identities on one hand
and as a management philosophy on the other hand.
Thus, it is reasonable for researchers to become suspicious about whether
there exists the phenomenon named supply chain management and, if any, whether
the term is used differently in different situations. In the same context, Bechtel and
Jayaram (1997) asked, Is the concept of supply chain management important in
todays business environment or is it simply a fad destined to die with other shortlived buzzwords? Therefore, there is an urgent call for conceptualizing supply chain
management to give specific guidance as to what precisely supply chain management
is, what are the pre-requisites of it, and what its actual effects on business
performance are.
Through the literature, we proposed in this study that the term supply chain
management is in use today to describe multiple phenomena: a Supply Chain
Orientation (SCO) and Supply Chain Management (SCM). Therefore, we attempts
to show how the terms a supply chain orientation and supply chain management are
used differently at different management levels, and suggest a framework for
understanding the relationship between a supply chain orientation and supply chain
management based upon a critical literature review. As the starting point of further
discussion about a supply chain orientation and supply chain management, we first
propose a definition of Supply Chain (SC) that is the common denominator of both
the concepts with the help of different literatures.
18

2.3 Supply Chain (SC)

The definition of supply chain seems to be common across authors (Cooper
and Ellram, 1993; La Londe and Masters, 1994; Lambert et al., 1998). La Londe and
Masters (1994) proposed that a supply chain is a set of firms that pass materials
forward. Normally, several independent firms are involved in manufacturing a
product and placing it in the hands of the end user in a supply chain; raw material and
component producers, product assemblers, wholesalers and retailer merchants are all
members of a supply chain (La Londe and Masters, 1994). Similarly, Lambert et al.
(1998) define a supply as the alignment of firms that brings products or services to
market. Christopher (1992) defines a supply chain as the network of organizations
that are involved, through upstream and downstream linkages, in the different
processes and activities that produce value in the form of products and services in the
hands of the ultimate consumer. In other words, a supply chain consists of multiple
firms, both upstream (suppliers) and downstream (customers). Mentzer et al. (2001)
specified the nature of a supply chain that: a supply chain is a set of three or more
companies directly linked by one o more of the upstream and downstream flows of
products, services, finances and information from a source to a customer.

Thus, the nature of a supply chain is inclusive so that the membership is not
limited to a supplier, a manufacturer and a distributor, but open to any firm that
performs various services, including a third party financial providers, a third party
logistics (3PL) provider, a market research firm and so on (Mentzer et al., 2001). A
supply chain is distinguished from a partnership by the fact that a partnership consists
of a dyadic relationship between the two firms, whereas a supply chain includes at
least three firms (Soonhong, 2001). Defined in a more holistic fashion, a supply chain
is the network of facilities and activities that perform the functions of products
development, procurement of material from the vendors, the movement of materials
between facilities, the manufacturing of products, the distribution of goods to
customers,

and

the

after-market

support

for

sustainment

(Mabert

and

Venkataramanan, 1998). This definition is more in line with the value chain view
which includes all the value-adding processes required to deliver the product or
services to the end customer or market (Davis, 1993; Porter, 1985). According to
Christopher (2005), the term supply chain may have not initially meant value chain,
but continued outsourcing and vertical disintegration has led the value chains to be
extended beyond the boundaries of the firm and hence the supply chain is becoming
19

the value chain. Mentzer et al. (2001) further classified chains as either a basic
supply chain, and extended supply chain, or an ultimate supply chain. The
detailed definition of supply chain itself and each type of supply chain by Mentzer et
al. are:
1. A basic supply chain consists of a company, an immediate supplier and an
immediate customer directly linked by one or more of the upstream and
downstream flows of products, services, finance and information.
2. An extended supply chain includes suppliers of the immediate supplier and
customers of the immediate customers, all linked by one or more of the upstream
and downstream flows of products, services, finance and information.
3. An ultimate supply chain includes all the companies involved in all the upstream
and downstream flows of products, services, finances and information from the
initial supplier to the ultimate customers.
Mentzer et al. (2001) argued that supply chains exist whether they are
managed or not. In other words, there exists a definite demarcation between supply
chains as phenomena that exist in business and the management of those supply
chains: the former is simply something that exists in distribution channels, while the
latter takes overt management efforts by the organizations within the supply chain
(Mentzer et al., 2001). Therefore, supply chains are autogenetic in nature, whereas
management of supply chains is artificially organized with collective efforts of supply
chain members. Cooper et al. (1997) argued that organizational relationships tie firms
to each other and may tie their success to the supply chain as a whole. In this context,
a supply chain as a whole may have its own identity and function like an independent
firm (Soonhong, 2001). What the authors (Christopher, 1992; Cooper et al., 1997)
meant is managed supply chains.
This is so because without the recognition and management of supply chains
by its members, ompanies cannot compete by supply chains. Cooper and Ellram
(1993) suggested that supply chain management is a form between fully vertically
integrated system and those where each firm in the channel operates completely
independently. Similarly, Gentry and David (1996) proposed that a strategic
partnership between any two firms, whether it is between buyer and seller or
manufacturer and carrier could be a segment of an extended supply chain. In other
words, supply chain is a set of firms among which cooperation may take place.

20

Althhough the supply

s
chainn concept considers
c
thhe multiple llinks that guide
g
the
flow and transformatioon of raw materials
m
to finished
f
gooods and thee ultimate co
onsumer
(Cooper annd Ellram, 1993; Haulihhan, 1988; Stevens,
S
1989), most aarticles only
y explore
dyadic relattionships inn the channeel. Ellram an
nd Cooper (1990)
(
sugggested that effective
e
supply chaiin is made up
u of a seriees of partn
nerships, among firm
ms working together
and mutuallly sharing information
i
n, channel risks
r
and rew
wards that yyield a com
mpetitive
advantage. In the saame article, Ellram and
a
Cooperr (1990) ccontended that
t
the
successful supply chaain relies on
o forming strategic partnerships
p
s with a long term
orientation.. Accordingg to Gentryy and David
d (1996), a strategic ppartnership between
b
any two firms
fi
is a segment of an exten
nded supplyy chain. Inn other wo
ords, the
developmennt of multipple strateggic partnersships or allliance is a form of org
ganizing
supply chaain managem
ment, proviiding competitive advaantage that,, in turn, reesults in
business peerformance greater thann would be achieved byy the firms iindividually
y.
All different types
t
of chhannel strucctures in a supply chaain are reprresented
graphicallyy in figure 2.1.
2 Notice that
t
the two
o-way arrow
ws indicate that more than
t
just
products floow throughh supply chaains and paartnership, products,
p
seervices, info
ormation
and financees, at a miniimum, flow
w through su
uch linkagess.
Nottice, also, thhat figure 2.1d
2
illustraates the complexity thhat ultimatee supply
chains can reach. In thhis, examplle a third-party financiial providerr may be prroviding
financing, assuming some
s
of the risk, and
d offering financial
f
addvice; a thiird-party
logistics (33PL) providder is perfoorming the logistics activities
a
beetween two
o of the
companies;; and a marrket researcch firm is providing
p
innformation about the ultimate
customers to
t a companny well backk up the sup
pply chain.
Figgure 2.1 : Types of Channel
C
Reelationship

Source : Mentzer
M
et all. (2001).
21

Considering that any combination of firms with different functions is possible in

supply chain configurations, any one organization can be part of numerous supply
chains. Wal-Mart, for example, can be part of the supply chain for candy, for clothing,
for hardware and for any other products (Mentzer et al., 2001). At the same time, a firm
can be at a different position in different supply chains. For example, AT&T might find
Motorola to be a customer in one supply chain, a partner in another, a supplier in a
third, and a competitor in still a fourth supply chain (Mentzer et al., 2001).

2.4 Supply Chain Orientation (SCO)

Some authors (Ellram and Cooper, 1990; Cooper and Ellram 1993; Greene,
1991; Cooper et al., 1997; Cottrill, 1997; Stevens, 1989; Narasimhan, 1997;
Subramani, 2004; Wang et al., 2006; Lee and Whang, 2001) define supply chain
management as an integrative philosophy to manage the total flow of a distribution
channel from the supplies to the ultimate customers. A business philosophy is a
particular belief of an organization or an idea or a policy statement. Monczka et al.
(1998) also argued that supply chain management is an organizational concept whose
primary objective is to integrate and manage the sourcing, flow and control of
materials using a total system perspective across multiple functions and multiple tiers
of suppliers. Thus, supply chain management has been seen as a set of beliefs that
each firm in the chain directly and indirectly effects all the other chain members as
well as the ultimate, overall channel performance (Cooper et al., 1997). Supply chain
management as a philosophy of channel management seeks synchronization and
convergence of intrafirm and interfirm operational and strategic capabilities into a
unified, compelling market place force (Ross, 1988). At the same time, according to
Ross (1988), SCM as an integrative philosophy directs supply chain members to focus
on developing innovative solutions to create unique, individualized sources of
customer service value. Langley and Holcomb (1992) also suggested that the
objective of SCM should be the synchronization of all channel activities to create
customer value. Thus, SCM as a philosophy suggests the boundaries of supply chain
management include not only logistics but also all other functions within a firm and
within a supply chain to create customer value (Soonhong, 2001). In this context,
understanding the customers values and requirements is essential (Tyndall et al.,
1998).

22

Thus, SCM as a philosophy drives supply chain members to have a mindset

toward customer orientation. In other words, SCM as a philosophy occurs inside the
firm to help its individuals prepare for implementing actions outside the firm. A
business philosophy may be different from management that is more action oriented
term. Therefore, Mentzer et al. (2001) proposed the term Supply Chain Orientation
(SCO), the idea of viewing the coordination of a supply chain from an overall system
perspective, with each of the tactical activities of distribution flows viewed within a
broader strategic context to replace SCM as a management philosophy.

Supply Chain Orientation (SCO) is, thus, defined as the recognition by a

company of the systemic, strategic implications of the activities and processes
involved in managing the various flows in a supply chain (Mentzer et al., 2001). Thus,
a company possesses a SCO if its management (in its entirety, not just one or two
individuals) can see the implications of managing the upstream and downstream flows
of products, services, finances and information across their supplier and their
customers. On the contrary, a company does not possess a SCO if it only sees the
systemic, strategic implications in one direction, either upstream or downstream of the
channel.

In summary, it is proposed that a SCO within a firm has the following characteristics:
1. A systems approach to viewing the channel as a whole, and to managing the total
flow of goods inventory from the supplier to the ultimate customers.
2. Cooperative efforts to synchronize and converge intrafirm and interfirm
operational and strategic capabilities into a unified whole, and,
3. A customer focuses to create unique and individualized sources of customer value.

It is important to highlight that, a firm with the SCO cannot implement it

individually; such implementation requires an SCO across several companies directly
connected in the supply chain. The firm with the SCO may implement individual,
disjointed supply chain tactics (such as just-in-time delivery or electronic data interchange with suppliers and customers), but this not supply chain management unless
they are coordinated (a strategic orientation) over the supply chain (a systemic
orientation). The implementation of a SCO requires several companies in the supply

23

chain. In the other words, SCM is the implementation of a supply chain orientation
across supplier and customers. Companies implementing SCM must first have a
supply chain orientation. Finally, a SCO is a management philosophy and SCM is the
sum total of all the overt management actions undertaken to realize that philosophy.
This brings us closer to understanding and defining supply chain management, which
will be explained in the next subsequent section.

2.5 Supply Chain Management (SCM)

The significance of Supply Chain Management (SCM) has been evident
since the early 1990s, although the approach actually dates from the early 1980s,
although the approach actually dates from the early 1980s (Oliver and Webber, 1982).
The underlying fundamentals of SCM have a long history (Alderson, 1965; Mc
Cammon and Little, 1965; Stern, 1969), but the discipline of SCM has experienced
increased attention in recent years (Frederik and Dennis, 2010). Such attention is due
to the fact that the discipline focuses on creating top-as well as bottom-line
improvements by streamlining the flow of materials, funds and information across the
supply chain, thereby hopefully creating competitive advantages for companies or
supply chains (Christopher, 1992). As such definitions of SCM are abundant in the
literature with researchers not agreeing on what exactly constitutes SCM.

Halldorsson et al. (2008), for example, noted that disagreement and confusion
about the real meaning of SCM currently exists in the contemporary literature, while
Burgess et al. (2006), state that SCM continues to be largely eclectic with little
consensus on its conceptualization. Other authors have also remarked these
definitions either implicitly or explicitly (Frohlich and Westbrook, 2001; Svensson,
2003; Giannakis and Croon, 2004). Thus, different approaches to the study of SCM
currently exists with some authors placing emphasis on SCM as an academic
discipline with different, researchable subtopics (Burgess et al., 2006; Harland et al.,
2006) and others suggesting that SCM complementarily also can be considered a
management implement suitable for implementation in companies that experience
problems related to the management of their supply chain (Bechtel and Jayaram,
1997; Fawcett and Magnen , 2002; Lambert et al., 2005, Kotzab et al., 2006).

24

Generally, different researchers are agreed that, a firm or a set of firms with a
supply chain orientation showed act or behave consistently with the integrative
philosophy of managing the supply chain not only within each firm but also within the
supply chain by multiple firms. In other words, managing a supply chain requires each
organization in a supply chain to be supply chain oriented and, at the same time,
perform a specific set of managerial actions within a supply chain in a collaborative
manner. This set of activities is a coordinated effort called supply chain management
(SCM) between the supply chain partners, such as suppliers, carriers and manufacturers,
to dynamically respond to the needs of the end customer (Greene, 1991).

SCM is at the strategic level, because it helps firm and its partners in a supply
chain to accomplish strategic goals such as improving competitiveness and overall
performance of the firm and the supply chain as a whole through creating customers
value. In this context, Bowersox and Closs (1996) argued that to be fully effective in
todays competitive environment, firms must expand their integrated behavior to
incorporate customers and suppliers. This extension of integrated behaviors, through
external integration, is referred to as supply chain management. Put together, Mentzer
et al., (2001) define supply chain management as the systemic, strategic coordination
of the traditional business functions and the tactics across these business functions
within the supply chain, for the purpose of improving the long term performance of
the individual companies and the supply chain as a whole.

Cooper and Ellram (1990) define SCM as an integrated philosophy to

manage the total flow of a distribution channel from supplier to the ultimate
customers. Both Harland (1996) and Christopher (1998) reach another conclusion.
Instead of managing flows, SCM is seen as the management of a network. Harland
(1996) defines SCM as the management of a network of interconnected businesses
involved in the ultimate provision of product and service packages required by end
customers. Rather than looking at SCM as the management of a vertical pipeline of
inter-linked firms, Harland (1996) considers SCM as management of a complex
network of organizations involved in exchange processes. Christopher (1998) argues
that the word chain should be replaced by network, since the total system
normally includes multiple suppliers and customers as well as multiple suppliers to
suppliers and customers customer.
25

Some scholars (e.g. Christopher, 1998; Heikila, 2002) also suggest that
supply chain management should really be termed demand chain management to
reflect the fact that the chain is driven by the market place to satisfy the needs of the
end-users. The Council of Supply Chain Management Professionals (CSCMP) (2004),
formerly the Council of Logistics Management (CLM), a leading professional
organization promoting SCM practices education and development, defines SCM as:
SCM encompasses the planning and management of all activities involved in
sourcing and procurement, conversion, and all logistics management activities,
including coordination and collaboration with suppliers, intermediaries, third-party
service providers and customers.( Thus the supply chain encompasses all activities
involved in the production and delivery of a final product or service, from the
suppliers supplier to the customers customer). In essence, supply chain management
integrates supply and demand management within and across companies
(www.cscmp.org). CSCMP emphasizes that SCM encompasses the management of
supply and demand, sourcing of raw materials and parts, manufacturing and assembly,
warehousing and inventory tracking, order entry and order management, and
distribution and delivery to the customers. Some other authors have defined SCM.
New and Payne (1995) and Simchi-Levi et al. (2000) define SCM as the integration
of key business processes among a network of inter-dependent suppliers,
manufacturers, distribution centers, and retailers in order to improve the flow of
goods, services and information from original suppliers to final customers, with the
objectives of reducing system-wide costs while maintaining required service levels
(as cited in Stapleton et al., 2006).

The Global Supply Chain Forum (GSCF) defines SCM as the integration of
key business processes from end user through original suppliers, that provides
products, services and information that adds value for customers and other
stakeholders (as cited in Lambert et al., 1998). Although many definitions exist for
SCM in the literature, there is no single basic definition of SCM that is universally
used. Therefore, the various definitions are summarized in Table 2.1

26

Table 2.1 : SCM Definitions

Definition

Source

Supply chain management is defined as an integrated Ellram and Cooper,

philosophy to manage the total flow of a distribution 1990.
channel from supplier to the ultimate customers.
Network of organizations that are involved, through Christopher, 1992.
upstream and downstream linkages in the different
processes and activities that produce value in the form of
products and services in the hands of the ultimate
customers.
Effort involved in production and delivering a final product The Supply Chain
from the suppliers supplier to the customers customer.
Council, Kranze, 1996.
The integration of business processes from end user through Lambert et al., 1998
original suppliers that provides products, service and Cooper, et al., 1997.
The International
information that add value for customers.
Center for Competitive
Excellence, 1998.
SCM is about going from the external customer and then Monczka and Morgan,
managing all the processes that are needed to provide the 1997.
customer with value in a horizontal way.
The supply chain management encompasses all of those Quinn, 1997.
activities associated with moving goods from the raw
materials stage through to the end user.
The delivery of enhanced customer and economic value La Londe, 1998.
through synchronized management of the flow of physical
goods and the associated information from sourcing to
consumption.
The systematic effort to provide integrated management to Stein and Voehl, 1998.
the supply value chain in order to meet customer needs and
expectations, from suppliers of raw materials through
manufacturing and on to end-customers.
The network of facilities and activities that performs the Mabert and
functions of product development, procurement of material Venkataramanan,
from vendors, the movement of material between facilities, 1998.
the manufacturing of products, the distribution of finished
goods to customers and after-market support for
sustainment.
The management of upstream and downstream relationships Christopher, 1998.
with suppliers and customers to deliver superior customer
value at less cost to the supply chain as a whole.
The coordination of activities, within and between vertically Larson and Rogers,
linked firms, for the purpose of serving end customers at a 1998.
profit.
27

All the activities involved in delivering a product from raw Lummus and Vokurka,
material through to the customer including sourcing raw 1999.
materials and parts, manufacturing and assembly,
warehousing and inventory tracking, order entry and order
management, distribution across all channels, delivery to
the customer, and the information system necessary to
monitor all of these activities.
SCM is a concept concerned with activities to plan, Bowersox et al., 1999.
implement and control the efficient and effective sourcing,
manufacturing and delivering process for products, services
and related information from the point of material origin to
the point of ultimate consumption for the purpose of
conforming the end-customer requirements.
The SCM encompasses all activities associated with the Handfield and Nichols,
flow and transformation of goods from the raw materials 1999.
stage, through to the end user, as well as the associated
information flows, material and information flow both up
and down the supply chain.
SCM is a set of approaches utilized to efficiently integrate Simchi-Levi et al.,
suppliers, manufacturers, warehouses and stores, so that 2000.
merchandise is produced and distributed at the right
quantities, to the right locations, to the right time, in order
to minimize system-wide costs while satisfying service
level requirements.
Managing supply chain flows and assets to maximize Chopra and Meindle,
supply chain surplus.
2001.
A philosophy of management that involves the management Ho et al., 2002.
and integration of a set of selected key business processes
from end user through original suppliers that provides
products, service and information that add value for
customers and other stakeholders through the collaborative
efforts of supply chain members.
Network of connected and inter-dependent organizations Aitken in Christopher,
mutually and co-operatively working together to control, 2005.
management and improve the flow of materials and
information from suppliers to end users.
SCM encompasses the planning and management of all CSCMP, 2007.
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.

28

From these definitions, nine key elements of SCM can be derived. Of these,
five are considered hard elements in the sense that they are tangible. The other four
are considered to be soft, meaning that they are intangible in nature. The hard key
elements are:
1. Product and its flow (including its components, parts and materials ) (Chopra and
Meindle, 2001; Christopher, 1998; Ho et al., 2002; Kranze, 1996; LaLonde, 1998;
Lambert et al., 1998; Larsen and Rogers, 1998; Lummus and Vokurka, 1999;
Mebert and Venkataramanan, 1998; Quinn, 1999; Simchi-Levi et al., 2000; Stein
and Voehl, 1998).
2. Suppliers and suppliers of suppliers (Chopra and Meindl, 2001; Christopher,
1998; Ho et al., 2002; Kranze, 1996; LaLonde, 1998; Lambert et al., 1998, Larsen
and Rogers, 1998; Lummus and Vokurka, 1999; Mebert and Venkataramanan,
1998; Quinn, 1999; Sinmchi-Levi et al., 2000; Stein and Voehl, 1998).
3. Firms (Chopra and Meindl, 2001; Christopher, 1998; Ho et al., 2002; Kranze,
1996; LaLonde, 1998; Lambert et al., 1998; Larsen and Rogers, 1998; Lummus
and Vokurka, 1999; Mebert and Venkataramanan, 1998; Monczka and Morgan,
1997, Quinn, 1999, Simchi-Levi et al., 2000; Stein and Voehl, 1998).
4. Customers and Customers of Customers (Chopra and Meindle, 2001; Christopher,
1998; Ho et al., 2002; Kranze, 1996; LaLonde, 1998; Lambert et al., 1998; Larsen
and Rogers, 1998; Lummus and Vokurka, 1999; Mebert and Venkataramanan,
1998; Monczka and Morgan, 19976; Quinn 1999; Sinchi-Levi et al., 2000; Stein
and Voehl, 1998), and
5. Information and its flow (Chopra and Meindle, 2001; Ho et al., 2002; LaLonde,
1998; Lambert et al., 1998; Lummus and Vokurka, 1999).

The soft key elements are

1. Value creation (Chopra and Meindle, 2001; Christopher, 1998; Ho et al., 2002;
LaLonde, 1998; Lambert et al., 1998; Larsen and Rogers, 1998; Monczka and
Morgan, 19976; Stein and Voehl, 1998).
2. Integration (Ho et al., 2002; LaLonde, 1998; Lambert et al., 1998; Stein and
Voehl, 1998).
3. Collaboration (Ho et al., 2002; LaLonde, 1998; Larsen and Rogers, 1998), and
4. Agility and flexibility (Duclos et al., 2003; Jenkins and Wright, 1998; Scannell et
al., 2000).
29

The fourth soft key element is not explicitly stated n the definitions in Table 2.1.
Lambert et al. (1997) also argue that supply chain management consists of three
separate elements, network structures, business processes and management
components. Briefly, network structures concern the arrangement of the members of the
supply chain and their relations, business processes concern activities and flows in the
supply chain, and management components concern the management of the other two.
Furthermore, Lambert et al. (1997) suggest three primary aspects of a supply
chain management structure:
1. The members of the supply chain;
2. The structural dimensions of the network; and
3. The different types of process links across the supply chain.
The first aspect represents companies working in the same supply chain. The
second concerns the structure dimensions of the supply chain, which are horizontal
structure, vertical structure and horizontal position of the focal company. The final
aspect concerns different types of process links across the supply chain, describing the
degree of integration between members across that specific process link. Second, we
have the process element. Lambert et al. (1997) suggest that this element
comprehends eight different processes that are essential to supply chain management:
customer relationship management, customer service management, demand
management, order fulfillment, manufacturing flow management, procurement,
product development and commercialization and return. However, Davenport (1993)
defines processes as a structured and measured set of activities designed to produce a
specific output and value for a particular customer.
Lee (2000) suggests that a supply chain should be described using the three
flows of products, information and finance. Stock and Lambert (2001) argue that the
management components of SCM are common, critical and fundamental across all
business processes, members and relationships.
The management components are divided into two separate categories where
the first are physical and technical components and the second are managerial and
behavioral components. Being more visible, tangible, measurable and easy to change
components characterizes the first group and the second group is characterized by
being the opposite. One can say that the managerial and behavioral components
30

define the organizational behavior and influence how the physical and technical
management components can be implemented. These elements and sub elements of
SCM can be seen in Table 2.2.
Table 2.2 : Detail elements of SCM
Elements of supply chain management

Description

Structure
Members of supply chain

Member s, roles, etc

Structural dimension ( horizontal and vertical )

Horizontal structure / position or

vertical structure of members/
nodes

Degree of integration ( managed, monitored and

none )

Degree of integration on arcs

between members/ nodes in the
supply chain

Process
Flow

Product flow

Flow of products between

members/ nodes

Information flow

Flow information between

members/ nodes

Monetary flow

Flow of money between members

nodes

Operational activities

Type of activities order between

activities

Management Component
Physical and technical

Managerial and behavioral

Planning and
control methods

Measurement , performance
metrics, key performance
indicator (KPI), etc

Organizational
structure

Firm organization structure , inter

organizational team work , etc

Responsibility (
ownership, liability
and operations)

Ownership of product , liability of

product, or responsibility of
operations

Management
methods

Management methods, level of

commitment , etc

Power and
leadership structure

Power structure and relations

between members

Risk and reward

structure

Contracts, fee structure,

mechanisms, etc

Culture and attitude Culture, trust or attitude

Sources: Adapted from Lambert et al., (1997, 1998).

31

Cooper et al. (1997) define a model of SCM, which includes key supply chain
business processes, and flows of information and products over a supply chain
network structure. This model of SCM highlights six key processes within a firm:
purchasing, logistics, marketing and sales, production, research and development and
finance. SCM processes are integrated within several tier suppliers and several
customers or end customer through the key supply chain processes of customer
relationship management, demand management, procurement and returns, among
others (Cooper et al., 1997). This model of SCM is shown in Figure 2.2.
Figure 2.2 : Integrating and Managing Business Processes Across the Supply Chain

Source: Lambert (2008).

32

2.5.1 The Supply Chain Operation Reference (SCOR) Model

The SCOR model is a cross-functional frame work, which integrates the
concepts of business process reengineering, benchmarking and process management.
The SCOR model offers structured process to improve the management of the supply
chain (Holmberg, 2000). This initiative of the Supply-Chain Council (SCC) has
grown in popularity and reported successful implementations and contributions from
the supply-chain council members, practitioners and consultants. The SCOR model
was developed to standardized and improves the supply chain management
effectiveness of firm, providing a common process oriented language on its five
decision areas, Plan, Source, Make, Deliver and Return (Lockamy III and
McCormack, 2004).

The supply chain management structure based on the SCOR model is shown
in Figure 2.3 (adopted from SCC, 2008). SCOR is designed to be a standard language
that helps management focus on both intra and inter-company SCs through effective
communication among SC partners. It is used to describe, measure and evaluate SC
configurations in order to achieve competitive advantage. SCOR contains three levels
of process detail that help integrate a SC from suppliers supplier to customers
customer.

33

34

Source:Supply-Chain Council (2008).

Figure - 2.3 : SCOR Model

The SCOR model is deployed in three levels of process details (SCC, 2008)

Level one, the top level, is related to process types and defines the scope and
contents of the model, implying the definition of the core management processes
for the decision areas Plan, Source, Make, Deliver and Return. At this level is the
set of competition performance targets.

Level two, the configuration level, is related to process categories and provides a
set of core process categories. This level describes the characteristics linked to the
process types deployed within the core processes previously defined in level one.
Also, this level defines process categories because of the relationship between a
core management process and a process type.

Level three, the process element level, is related to the enterprise fine tuning. It
defined the ability of a company to compete successfully in a specific market.
This level consist of process element definitions, process element information,
input, and output, process performance metrics, best practices, systems
capabilities to support best practices and general system and tools. These levels
have been shown in figure 2.4.

Level four, is the implementation of sell practices. This level is not included in the
model scope. (Companies implement supply chain management practices that are
unique to their organizations of this level. Level four and lower defines specific
practices to achieve competitive advantage and to adapt to changing business
conditions).

It is important to highlight that the SCOR model does not provide a unique
solution for the improvement of the supply chain management. The SCOR model
does not offer a step-by-step procedure to improve the supply chain management and
must be supported by efficient systems and information technology, not defined by
the model. In spite of SCOR is widely accepted by several companies in all over the
world.

35

Figure 2.4 : Three Levels of SCOR Process

Source: Supply-Chain Council (2008).

2.5.2 Supply Chain Management Antecedents and Consequence

The idea of viewing the coordination of a supply chain from an overall system
perspective and the recognition by a company of the systematic, strategic implications
of the activities and processes involved in managing the various flows of products,
information and money in a supply chain called supply chain orientation, which is
considered as an antecedents of effective supply chain management implementation
within the firms boundaries. As SCM is typically long term perspective, supply chain
36

oriented firms should build and maintain some specific behavioral antecedents to
create benefits as consequences of SCM through effective functional and integrated
practices with their supply chain partners. Therefore, we can examine the antecedents,
SCM practices and consequences of SCM at the strategic level (see Figure 2.5).

Figure 2.5 : Antecedents and Consequences of SCM

Supply Chain
Orientation

Supply Chain Management

Consequences

Systemic View
Strategic View

Single Company
Antecedents

Shared Risk and

Rewards
Cooperation

Similar Customer

Willingness to address:

Trust

Commitment

Interdependence

Organizational

Vision

Key Processes

Leader

Top Manager Support

Improved Customer
Value and Satisfaction
Profitability(lower

Services Goals and

costs and / or Increased

Focus

Revenue)

Integration of Key
Processes

Differential
Advantage

Long- Term
Relationships

Compatibility

Three or more
contiguous companies
with a SCO
Information Sharing

Inter-functional
Coordination

Source: Mentzer et al., 2001.

2.5.2.1 Antecedents to SCO and SCM

Antecedents to SCM are the factors that enhance or impede the
implementation of an SCO philosophy. The following behavioral elements are the
main antecedents toward the relations with supply chain members within the firm:
trust, commitment, interdependence, organizational compatibility, vision and
strategic fit and leader and top management support.

37

First, Morgan and Hung (1994) proposed that cooperation arises directly from
both relationship trust and commitment. Moorman et al. (1993) define trust as a
willingness to rely on an exchange partner in whom one has confidence. Trust among
people is interpersonal rather than private, and this plays a role in fulfilling
commitments (Kramer and Tyler, 1996). Moorman et al. (1992) determined that user
trust significantly affects user commitment in marketing research and that the effects
of marketing relationships have grown. Consistently, trust has a positive influence on
commitment, and improves the relationship between retail buyers and vendors
(Ganesan, 1994; Narayandas and Rangan, 2004). Narayandas and Rangan (2004)
have posited that interpersonal trust in a buyerseller relationship facilitates the
development of inter organizational commitment in a mature industrial market. Gulati
and Sytch (2007) determined the interpersonal trust effects not only inter
organizational commitment, but also performance. Trust produces mutual
expectations (Bachmann, 2003). Due to the elements of risks in supply chain, trust
may be substituted by Control (Nooteboom, 2003). It was emphasized that trust has
significant role to overcome mutual difficulties such as power, conflict, lower
profitability, and so on. Thus, it is proposed that trust has an effect on sharing risks
and rewards (Dwyer et al., 1987). Zand (1972) stressed that the relationship of trust
and commitment is highly correlated and pre-required with the solution of problems.

Commitment refers to the attention necessary for the achievement of important

outcomes such as lower turnover, higher motivation, and greater organizational
citizenship (Morgan and Hunt, 1994). Dwyer et al. (1987) defined commitment as an
implicit or explicit pledge of relational continuity between exchange partners.
Commitment is an essential ingredient for the successful long-term relationships that
is a component of the implementation of SCM (Gundlach et al., 1995). Gundlach et
al. (1995) defined an attitudinal commitment as a partisan, effective attachment to the
goals and values of an organization, to ones role in relation to the goals and values,
and to the organization for its own sake, apart from its purely instrumental worth.
Thus, in a channel context, developing and maintaining commitment to a partner firm
in a supply chain is an implementation effort toward a SCO inside a firm. Lambert et
al. (1998) also point out that the necessary commitment of resources and
empowerment to achieve the stated goals is important to implement SCM.
Emphasizing the collective effects of trust and commitment, Morgan and Hunt (1994)

38

stated that commitment and trust are key because they encourage markets to (1)
work at preserving relationship investments by cooperating with exchange partners,
(2) resist attractive short-term alternatives in favor of the expected long-term benefits
of staying with existing partners, and (3) view potentially high-risk actions as being
prudent because of the belief that their partners will not act opportunistically.
Second, interdependence of a firm on the partner refers to the firms need to
maintain a relationship with the partner to achieve its goals (Frazier, 1983).
Acknowledged interdependence is a prime force in the development of supply chain
solidarity (Bowersox and Closs, 1996). In addition, this interdependence is what
motives willingness to negotiate functional transfer, share key information and
participate in joint operational planning (Bowersox and Closs, 1996). Ganesan (1994)
proposed that dependence of a firm on another firm is positively related to the firms
long-term relationship orientation. Authors (Stem and Reve, 1980; Anderson and
Weitz, 1989; Buchanan, 1992; Ganesan, 1994; Kumar et al., 1995) acknowledged that
when firms are dependent on each other the relationship becomes more stable and
effective. Johnson et al. (1989) state that, the combination of positive goals and
rewards interdependence do, in fact, increase individual achievement and group
productivity in the individual context. By way of contrast, economic perspective
theory contends that interdependence is inescapably important when organizations
must cope with uncertainty (Subramanian and Watson, 2006).
In terms of organizational level, interdependence is defined as resource
dependencies among partners for the achievement of mutually beneficial goals (Mohr
and Spekman, 1994). However, resource dependence implies a loss of autonomy and
gives power to another party (Dyer, 1997). Therefore, interdependence is associated
with the notions of power and control (Gulati and Sytch, 2007; Oliver, 1990). Bartlett
and Ghoshal (1989) explained that interdependence involves the sharing of resources,
ideas and opportunities, but nonetheless overlooked the issue of how independence
between companies influences partners SCM. Dyer (1997) noted that mutual
investment or dependence regarding specific assets expands opportunities to improve
performance in the manufacturer-supplier relationship. He also contended that coinvestment builds high levels of relational trust. Gulati and Sytch (2007) also
mentioned that a high level of joint dependence generates conditions that develop and
maintain trust and commitment owing to opportunistic behavioral costs, differential
power and asymmetric control.
39

Third, corporate philosophy or culture, and management techniques of each

firm in a supply chain should be compatible for successful supply chain management
(Cooper et al., 1997; Lambert et al., 1998). Organizational compatibility refers to
complementarily in goals and objectives, as well as similarity in operating
philosophies and corporate cultures (Bucklin and Sengupta, 1993). It partners do not
match the each others operating requirements, culture, structure, and procedural
operational incompatibility, then those things become obstacles in the achievement of
cooperation for high-level strategic alliances (Niederkofler, 1991).
After the relationship becomes operational, some larger manufactures tend to
read impediments in interacting with their smaller suppliers, owing to the lack of
formal or different processes. Therefore, to create operational compatibility in the
supply chain context, large firms need to endeavor enthusiastically to fill the gap (Il et
al., 2009). Gulati (1995) showed that compatibility in operating systems is critically
important to the effectiveness of partner firms. Bucklin and Sengupta (1993)
confirmed that the organizational compatibility between the firms in an alliance has a
strong positive impact on the effectiveness of relationship.
Fourth, Lambert et al. (1998) suggest that there should be an agreement of
vision and strategic fit on SCM practices. Strategic fit is defined as the overlap of
partners interest in a certain area, while pursuing mutual goals (Niederkofler, 1991).
Strategic fit represents cooperation, congruency, mutual goals, and joint interest (Il et
al., 2009). According to Miles and Snows argument, management should represent a
balance of strategy, structure and process, which must be embedded in the
management philosophy. This represents an internal fit; however, an external fit is
also becoming important from the context of mergers, acquisition, partnerships, and
alliances of and between firms (Douma et al., 2000). A firm drives linkages or
exchanges with other firms to fulfill their strategic needs (Oliver, 1990), alliance
requirements (Bucklin and Sengupta, 1993; Dyer et al., 1998) or concentrates its
limited resources on core competencies in order to effectively exploit outside
resources (Quinn, 1999). During such cooperation over time, firms must believe the
other party, which means that fit is related closely to concepts of complementary
balance, mutual benefits, and harmony and dependency. In the meantime, miss
constructed perceptions and negativity of strategic fit, which increase transactional
costs and make success more difficult, the importance of trust is increased (Sahay,
2003; Tian et al., 2008). Significantly, trust is an essential belief in the representation
of mutual wills. In addition, motivation based on mutual goals and strategic fit
40

ensures a close match between the suppliers specification and requirements, this is
referred to as commitment. Commitment results in the fulfillment of partners
equitability (Ring and Van de Ven, 1992). Thus, there exist compelling reasons for
the linkage between strategic fit and trust and commitment. Ross (1998) confirmed
that, the creation and communication of a market-winning competitive SCM vision
shared not just by individual firms but also by the whole supply chain is essential
before any SCM project can begin. Visioning provides firms with specific goals and
strategies concerning how they plan to identify and realize the opportunities they
expect to find in the marketplace (Ross, 1998).
Finally, different authors (Hambrick and Mason, 1984; Webester, 1988; Tosti
and Jackson, 1994; Flynn et al., 1995; Trent and Monczka, 1999, Harison and New,
2002) suggested that top management plays a critical role in shaping an
organizations values and orientation or direction. Day and Lord (1988) found that top
level managers have a substantial impact on organizational performance. Lambert et
al. (1998) also proposed that top management support, leadership and commitment to
change as an important antecedent to the implementation of SCM. This is also
supported by a recently conducted survey study (Larson et al., 2007) among senior
members of the Council of Supply Chain Management Professionals (CSCMP),
where top management support is identified as the most important facilitator for
implementation of SCM. Some researchers also have emphasized that supply chain
needs leader as much as individual organizations (Bowersox and Closs, 1996). Ellram
and Cooper (1990) propose that a supply chain leader is like a channel captain and
plays a key role in coordinating and overseeing the whole supply chain. The success
of supply chain management is directly related to the presence of constructive
leadership capable of simulating cooperative behavior between participating firms
(Schmitz et al., 1994). In the same context, Loforte (1993) contends that the lack of
top management support is an important barrier to SCM.
In summary, a supply chain oriented organization should build, maintain and
enhance the elements in its supply chain relationships as stated above. Thus, a supply
chain orientation, as a business philosophy, within a firm is implemented by these
elements toward the interfirm relationships in the supply chain. In other word,
management of the supply chain is accomplished only when several companies in line
in the supply chain have that orientation and move toward implementing the
management philosophy of supply chain orientation.
41

2.5.2.2 SCM as a Set of Activities to Implement a Management Philosophy

As a philosophy, SCM takes a system approach to viewing the channel as a
single entity, rather than as a set of fragmented parts, each performing its own
function (Ellram and Cooper, 1990; Houlihan, 1985). In other words, the philosophy
of SCM extends the concepts of partnerships into a multi firm effort to manage the
total flow of goods from the supplier to the ultimate customers (Ellram, 1990; Jones
and Riley, 1985). Thus, SCM is a set of beliefs that each firm in the supply chain
directly and indirectly effects the performance of all the other supply chain members,
as well as ultimate, overall channel performance (Coopert, Ellram et al., 1997). SCM
as a philosophy of channel management seeks synchronization and convergence of
intrafirm and interfirm operational and strategic capabilities into a unified, compelling
marketplace force (Ross, 1998). SCM as an integrative philosophy directs supply
chain members to focus on developing innovative solutions to create unique,
individualized sources of customer service value. Longley and Holcomb (1992)
suggest that the objective of SCM should be the synchronization of all channel
activities to create customer value. Therefore, in adopting a SCM philosophy, firms
must establish management practices that permit them to act or behave consistently
with the philosophy. Previous researches have suggested various activities necessary
to implement on SCM philosophy successfully (see Table 2.3 and Figure 2.5).

Table 2.3 : Supply Chain Management Activities

1

Integrated behavior.

Mutual sharing information.

Mutually sharing channel risks and rewards.

Cooperation and collaboration.

The same goal and the same focus of service customers.

Integration of processes.

Partners to build and maintain long-time relationships.

Source: Mentzer et al. (2001).

42

First, Bowersox and Closs (1996) argued that to be fully effective in todays
competitive environment, firms must expand their integrated behavior to incorporate
customers and suppliers. In this context, the philosophy of SCM turns into the
implementation of SCM as a set of activities that carries out the philosophy. This set
of activities is a coordinated effort called SCM between the supply chain partners,
such as suppliers, carriers and manufacturers, to respond dynamically to the need of
the end customers (Greene, 1991).

Second mutually sharing information among the channel members is required,

especially for planning and monitoring processes (Ellram and Cooper, 1990; Novack
et al., 1995; Cooper, Ellram et al., 1997; Cooper et al., 1997). Cooper, Lambert, and
Pagh (1997) emphasized frequent information updating among the supply chain
members for effective supply chain management. The Global Logistics Research
Team at Michigan State University (1995) defined information sharing as the
willingness to make strategic and tactical data available to other members of the
supply chain. The research team (1995) proposed open sharing of information such as
inventory levels, forecasts, sales promotion strategies, and marketing strategies
reduces the uncertainty between supply chain partners and results in enhance
performance.

Third, effective SCM also requires mutually sharing channel risks and
rewards that yields a competitive advantage (Ellram and Cooper, 1990). Risk and
reward sharing should happen over the long term (Cooper, Ellram, et al., 1997). Risk
and reward sharing is important for long-term focus and cooperation among the
supply chain members (Cooper, Lambertm, et la., 1997). Rao et al. (2006) noted that
integrated relationship between supply chain members requires sharing of risks,
rewards and continuous improvement assessment.

Fourth, cooperation or working together among the supply chain members is

required for effective SCM (Ellram and Cooper, 1990). Cooperation refers to similar
or complementary coordinated activities performed by firm in a business relationship
to produce superior mutual outcomes or singular outcomes that are mutually expected
over time (Anderson and Narus, 1990). Cooperation appears as enterprises recognize
cases where working and operating alone is not sufficient to resolve common
43

problems and to achieve the desired goals (Huxham, 1996; Corbett et al., 1999; Barrat
and Oliveira, 2001; Wagner et al., 2002). According to Copper, Ellram et al. (1997)
cooperation is not limited to the needs of the current transaction and happens at
several management levels (e.g., both top and operational managers), involving cross
functional coordination across the channel, members. As Bailey and Francis (2007)
determined that cooperative practices and high level of information transparency help
a firm to deliver superior order replenishment performance between supply chain
members.

Fifth, LaLonde and Masters (1994) proposed that a supply chain succeeds if
all the members of the supply chain have the same goal and the same focus of serving
customers. Establishing the same goal and the same focus among supply chain
members is a form of policy integration. Lassar and Zinn (1995) suggest that
successful relationships aim to integrate channel policy to avoid redundancy and
overlap while seeking a level of cooperation that allows participants to be more
effective at lower cost levels.

Sixth, the implementation of SCM needs the integration of process from

sourcing to manufacturing and to distribution across the supply chain (Cooper et al.,
1997). Davenport (1993) defined process as a structured and measured set of activities
designed to produce a specific output of a particular customers or market. A process is
a specific ordering of work activities across time and place, with a beginning, an end,
clearly identified inputs and outputs, and a structure for action (Cooper et al., 1997).
The key difference between the traditional functions and the process approach is that
the focus of every process is on meeting the customers requirements and that the firm
is organized around these processes. This integration process can be accomplished
through cross-functional teams, co-locating supplier personnel, and third party service
providers (Manrodt et al., 1997).

Finally, effective SCM is made up of a series of partnerships and, thus, SCM

requires partners to build, maintain and enhance long term relationships (Cooper,
Ellram, et al., 1997). They argue that the time horizon of the relationship extends
beyond the life of the contract, perhaps in definitely and, at the same time, the number
of partners should be small to facilitate increased cooperation. Gentry and Vellenga
44

(1996) argue that it is not usual that all the primary activities in a value chain-inbound
and outbound logistics, operations, marketing, sales and service-are performed by any
one firm to maximize customers value. Thus, forming strategic alliances with
channel partners such as suppliers, customers, or intermediaries (transportation and/or
warehousing services) provides competitive advantage through creating customer
value (Langley and Holcomb, 1992). But the motive behind all of these activities and
formation of effective supply chain management is to some competitive consequences
or can be called benefits of supply chain management which will all be explained in
section 2.9.

2.6 Supply Chain Integration (SCI)

Over the past decades, SCM emphasizing the interdependence of buyer and
supplier firm working integratively and collaboratively to improve the performance of
the entire supply chain has generated extensive interest in both academic and
practitioner communities (Shin et al., 2000; Narasimhan and Kim, 2007). Such
attention is due to the fact that the discipline focuses on creating top as well as
bottom-line improvement by integrative flow of materials, information and funds
across the supply chain, thereby creating competitive advantages for supply chain
members (Christopher, 1992). Additionally firms have begun to integrate their
external relationship (Supplier-firm-customer) and internal contextual factors as a
mean to improve customer satisfaction, firm performance, and firm competitiveness
(chins et al., 2010). Therefore to reach all of these objectives, the integration of SCM
system has been the subject of significant debates and discussion (Power, 2005), and
it was considered as an important antecedence of effective SCM.

Different terms are used interchangeably to denote this integrative attitude.

Authors speak about integration between supply chain partners (Bagchi et al., 2005;
Frohlich and Westbrook, 2001; Pagel, 2004; Petersen et al., 2005; Van der Vaart and
Van Donk, 2008), about supply collaboration (Cordnii et al., 2005; Holweg et al.,
2005; Min et al., 2005; Shirodkar and Kempf, 2006), or about alliance (Stuart, 1997;
Yang, 2008). Others talk about relationships (Bensaou, 1999; Fynes and Voss, 2002;
Goffin et al., 2006; Kozan et al., 2006), collaborative relationships (Hoyt and Huq,
2000; Johnston et al., 2004), partnerships (Gaddee and Snehota, 2000; Spina and
Zotteri, 2000) or supply side collaboration (Fu and Piplani, 2004). The fundamental
45

rational behind all these terms appears to be that companies cannot successfully
compete by themselves and therefore seek establishment of arrangements with other
entities in the supply chain. Term like integration, collaboration, cooperation and
coordination are complementary to each other in a supply chain as they consist of
similar elements (Arishinder and Deshmukh, 2008).The term Supply Chain
Integration (SCI) will be used in the remainder sections.

Integration is such a broad term that it can be used to describe a wide variety
of linkages between departments and firms. For example, internally or externally,
firms can integrate different elements of their operations. These elements may be
tangible (such as product flows, measurement, etc) or intangible (such as relationships
information, etc). The Global Supply Chain Forum (GSCF) defines SCM as the
integration of key business processes from end user through original suppliers that
provides products, services, and information that add value for customer and other
stakeholders(Global Supply Chain Forum, www.fisher.osu.edu/logistics/forum).

Integrate SCM includes design, management, and integration of companys

own supply chain with its suppliers and customers (McCormack and Johnson, 2002).
Horvath (2001) explained that Supply Chain Integration (SCI) has been advocated as
the key to creating value system and, eliminate redundancies through long-term
strategically collaboration between supply chain partners in SCM procedures from
ultimate suppliers supplier to ultimate customers customer (Mentzer et al., 2001).
SCI refers to the degree to which the firm can strategically collaborate with their
supply chain partners and collaboratively manage the intra and inter organizational
processes to achieve the effective and efficient flows of products and services,
information, money and decisions with the objectives of providing the maximum
value to be customers at low cost and high speed (Bowersox et al., 1999; Frohlich and
Westbrook, 2001; Stevens, 1989; Towill and McCullen, 1999; Van der Vaart and Van
Donk, 2004). Lee and Whang (2001) suggested that SCI can be defined as a
managerial approach that strives for great coordination and collaboration amongst
supply chain partners in an attempt to maintain competitiveness. Meanwhile, Vickery
et al., (2003) states that SCI should be strategically managed as a single system as
opposed to individually optimizing fragmented subsystems.

46

We highlighted the importance of the term Strategically collaborate.

Strategic collaboration is a form of mutual ongoing partnership between trading
partners to achieve some stated and mutually agreeable strategic goals. It is important
for SCI, because it engenders better mutual trust, longer duration of contract, more
efficient conflict resolution and better sharing of information, rewards and risks
(Ellarm, 1990; Heide and John, 1990; Poirier and Reiter, 1996). The basis of SCI can
therefore be characterized by cooperation, collaboration, information sharing, trust,
shared technology and strategic partnership (Akkermans et al., 1999). Strategic
partnership is always against arms length relationship (Lambert et al., 1996).
Lambert et al. (1996) see arms length relationships as consisting of either one-time
exchanges or multiple transactions. In either case, the transactions can be described as
having no sense of joint commitment or long-term cooperation, and both parties
maintain their independence throughout the transaction. But, a strategic partnership
can according to Lambert et al. (1996) be defined as a tailored business relationship
based on mutual trust, openness, shared risk and rewards that yields a competitive
advantage, resulting in business performance greater than would be achieved by the
firm individually. Moreover, SCI emphasizes on the intra and inter-organizational
process. Both processes are critical in the stages of SCI. Bowersox and Morash
(1989) proposed that the migration path of SCI should extend from the integration of
internal logistics processes to external integration with supplier and customers.
Parnell (1998) states that SCI really occurs when:

Customers and suppliers establish tight partnerships with the

objectives and probably outcomes of reduced inventory, shorter
lead times and better service to the customer.

Bowersox et al. (1999) identified that both internal and external integrations
are important, which external integration itself includes customer and supplier
integration.

A successful SCI implementation is expected to enhance the relationship

between upstream suppliers and downstream customers and thereby increase
customers satisfaction and firm performance. Rosenzweig et al. (2003) noted that
SCI has the potentiality to improve and create operational capabilities that
47

differentiate the firm in terms of cost leadership, product and service quality,
customization, lead times, flexibility, and agility and other competitive strategies. SCI
is also necessary for creating flexibility and agility in the supply chain (Christopher
and Towill, 2001), because integrating product development plans and product
designs with the suppliers lead to reduced investments and shorter cycle time (Morgan
and Monczka, 1996; Ragatz et al., 2002). Integrating with customers gives supply
chain members the knowledge of responses to meet the demand (Croson and
Donohue, 2003). However, this integration must be followed by coordination,
collaboration and alignment of the objectives along the supply chain for the supply
chain to be able to reap the benefits of integration and obtain competitive advantage
against other supply chains (Lee, 2000; Lee, 2004; Narayanan and Raman, 2004).

One successful example of an integrated supply chain is that of Wal-Mart and

its key supplies. Their tight coordination can be capitalized in terms of product
availability increases and inventory cost reduction (Simtupang et al., 2002). From the
perspective of inter-organizational relationship, SCI is the development of the
traditional buyer-seller relationship. Table 2.4 shows the main differences between
SCI and traditional buyer-seller relationships from several perspectives.

Table 2.4 : Major Differences between SCI and Traditional Buyer-Seller

Relationship

Relationship
Dimension
Cooperation
level
Orientation
Target

Buyer-Seller Relationship

SCI

Dyadic relationship

Triadic relationship

Low level cooperation between

buyers and sellers
Arms length oriented, self
interested
No collaborative objective

Relationship
complexity
Scope

Relatively simple
External process focused

Extent

Working together operationally

Source: Hou, 2007.

48

High level co operational

collaboration between the firms
Long term oriented customer
focused
To benefit all companies to
pursue the collaborative
objectives
Complicated
Both internal and external
process focused
Strategic, tactic and operational
cooperation.

2.6.1 Internal-Firm-Integration (IFI)

Internal firm integration refers to the degree to which a firm can structure its
organizational strategies, practices, procedures, and behaviors into collaborative,
synchronized and manageable process to fulfill its customers requirements
(Cespedes, 1996; Chen and Paulraj, 2004; Kahn and Mentzer, 1996; Kingman et al.,
1995). It is pointed out that internal integration of processes is one of the key drivers
of a firms logistical positioning competency (Mejza and Wisner, 2001). Integration
within a firm and between different departments is a must in SCM where there are
common goals of improving the long-term performance of the individual companies
and the supply chain as a whole.

Kohli and Jaworski (1990) limit the domain of coordination to inter-functional

communication. In other words, the focus of this view is on communication formal
and informal forms of meeting and/or exchange of documented information and
sharing of data regarding quality and common goal among personnel from different
functions within a particular firm. Researchers have examined internal integration
between various areas such as R & D and marketing (Ayers et al., 1997),
manufacturing and purchasing (Narasimhan and Das, 2001), Marketing with R & D
and manufacturing (Kahn and McDonough, 1997; Kahn and Mentzer, 1998), human
resource management and manufacturing (Pagell et al., 2000; Youndt et al., 1996).

Narasimhan (1997) and Stevens (1989) presented that the integration process
of SCM starting from functional integration to internal integration and finally to
external integration. At the functional integration stage, a firm being to integrate its
fragmented operations such as function segregation, incompatible control system, etc,
and emphasized cost reduction rather than performance improvement. At the stage of
internal integration, an individual firm has a full cross functional visibility and
emphasizes efficiency and electronic linkage across the firm. Mentzer et al. (2001)
identified the nature of internal firms members integration that should be managed
and controlled collaboratively with considering common goals, top management
support, trust and commitment as antecedents to improve the long-term performance
of the individual firm and the supply chain as a whole (see figure 2.6).

49

Figure 2.6 : An Integrated Model of InterFunctional Coordination

Antecedents of
Inter-function
Coordination

Nature of
Inter-function
Coordination

Common goals

Consequences of
Inter-function
Coordination
Competitive

Top management

Cooperative
Arrangement

Support

Advantage
Managerial
Control

Trust

-Reduced cycle time

-New product success

Profitability

Standardization
Commitment

Functional
Expertise

Organizational structure

Source: Mentzer et al. (2001).

2.6.2 External Integration (EI)

External integration refers to the degree to which a firm can create a
partnership with its key supply chain members to structure their inter organization
strategies, practices, procedures and behaviors into collaborative, synchronized and
manageable process to fulfill customers requirement (Stank, et al., 2001). External
integration can also be explained specifically as inter-organization interactions
between the upstream supplier and downstream customer (Vachon and Klassen,
2008). Therefore, external integration can be divided further into supplier integration
and customer integration.

2.6.2.1 Supplier-Firm-Integration (SFI)

Traditionally, suppliers of a firm have been treated as adversaries (Helper,
1991; Hoyt and Huq, 2000). Supplier-firm-integration refers to the degree to which a
firm can structure its strategies, practices, procedures, and behaviors into
collaborative, synchronized and manageable process with its external suppliers
(Cespedes, 1996; Chen and Paulraj, 2004; Kahn and Mentzer, 1996; Kingman et al.,
1995).
50

In the current environment, this kind of relationship no longer gives

competitive advantages to a firm. But many studies have incorporated suppliers
integration in product development projects (Handfield et al., 1999; Heriot and
Kulkarni, 2001), and suppliers are the main source of new idea generation, joint
problem solving and eliminate the redundancies of supply chain. In the literature,
several studies have identified firms practices with regard to developing relationships
with their suppliers. These studies are summarized in Table. 2.5.

Table 2.5 : Suppliers-Firm-Integration Practices

Practices

Source

Suppliers base management, supplier development, Tan et al., (1998).

quality assurance program, visiting suppliers facility,
sharing sensitive information.
Early suppliers involvement in product and process Narasimhan and Das (1999).
design, supplier responsiveness to order volume and
delivery change, use of appropriate measurement and
reward system in purchasing.
Supplier development, supplier partnering, JIT Scannel et al. (2000).
purchasing.
Supplier management and coordination using EDI, Dong et al. (2001).
information sharing, sharing joint cost saving,
working with suppliers to improve the management
of second tier suppliers.
Outsourcing supplier capability assessment and Narasimhan and Jayaram
management.
(1998).
Toni and Nassimbeni (1999) study the relationships among firm-supplier
operational practices, sourcing policies, and the firms performance. They divide
operational practices into design link, logistic link, and quality link. The study finds
that there are relationship between a firms performance and its operational practices
and between its performance and the firms sourcing policy. Monczka and Morgan
(1997) also study the attributes of strategic supply chain alliance between the firm and
its suppliers. They find that the following attributes are related to partnership success
with suppliers: trust and coordination, information quality and participation,
information sharing, joint problem solving and avoiding the use of severe conflict
resolution tactics.

51

2.6.2.2 Customer-Firm-Integration (CFI)

Today, customers, no longer just buy whatever products manufactures offer
and firms should not see their customers as simply buyers of their products, but also
as people to whom the firms should provide their value proposition (Iwan, 2007).
Customer-firm-integration refers to the degree to which a firm can structure its
strategies, practices, procedures, and behaviors into collaborative, synchronized and
manageable process with its external customers (Cespedes, 1996; Chen and Paulraj,
2004; Kahn and Mentzer, 1996; Kingman et al., 1995).

In the current literature, there is evidence that companies are moving away
from arms length relationship to the strategic partnership in their supply chain
integration with customers, where Thomke and Hippel (2002) suggest that the
customers can be a source of innovation for a company in long term partnership. New
business model such as built to order have emerged, where the customers initiatives
is paramount (Holweg and Pil, 2001). Customer Relationship Management (CRM)
has become a growing topic in marketing relationship and information technology
(Winer, 2001).

Developing partnerships with upstream suppliers and downstream customers

requires considerable resources and may involve significant risks (Stuart and
McCutcheon, 2000). A full partnership or integrated supply chain requires sharing of
risks, rewards and continuous improvement assessment efforts (Rao et al., 2006).
Establishing a flow of communication, sharing of information and documents is also
critical for building partnership between supplier and customer and considered as a
necessity for SCI. Therefore, companies have to find integrated means of working
closely together channel wide that are complementary to partners (Cooper and Ellram,
1993). Long term SCI, focuses along with close relationship with buyers and suppliers
is critical to financial success (Tan et a., 1998). This kind of SCI is depending on a
wide range of activities (Frohlich and Westbrook, 2001; Narasimhan and Kim, 2007),
or to focus on a specific subset such as demand planning, or even environmental
collaboration (Corsten and Kumar, 2005; Vachon and Klassen, 2008). Table 2.6
presents a partial set of activities that could be performed in an integrated supply
chain effort between buyers and suppliers.

52

Table 2.6 : Set of Activities in a SCI between Buyers and Suppliers

Share sales data

Meet frequently with partners

Share demand forecasts

Use of cross functional teams between

partners

Share inventory data

Resolve order exception jointly

Share production
scheduling data

capacity

and Resolve forecast exception jointly

Share order status and order tracking

Resolve logistics and delivery issues jointly

Share pricing information

Resolve quality problems jointly

Provide access to planning systems

Modify existing agreements if needed

Electronic information exchange (EDI, Share saving from reduced total inventory
internet)
cost
Exchange of real time information

Subsidize price marks downs

Plan product assortments jointly

Determine rewards and corrective actions

jointly

Plan promotional activities jointly

Common use of equipment, assets, or third

party

Plan inventory level jointly

Service.

Develop demand forecast jointly

Share cost of asset specific investment

Set order quantities jointly

Common use of third party logistical service

Develop goals and objectives jointly

Set mutual sales and performance targets

Plan new product design jointly

Develop and review key performance

indicators jointly.

Source: Adopted from Frohlich and Westbrook, 2001; Johnston et al., 2004; Narasimhan and
Kim, 2002; Simatatupang and Sridharan, 2005; Min et al., 2005.

2.7 Operational Characteristics of Supply Chain Management

The markets in which manufacture and service firms compete are increasingly
influenced by intense foreign competition, rapid technological change, shorter product
life-cycles and customers increasingly unwillingly to settle for mass-produced items
or services with limited value (Krause et al., 1998; Hitt et al., 1998; Zhang et al.,
2003). The new breed of customer (Handfield and Nichols, 2002), who demands
greater responsiveness to a dynamic set of requirements, and a new competitive
environment (Bower and Hout, 1988; Stalk, 1988), which exposes local companies to
completion from companies around the globe, from a new scenario that has challenged
firms in most industries (Mehta, 2001; Monczka and Morgan, 2000; Pagel, 2004).

53

In this new scenario, significant interest has been shown in recent years in the
flexible, lean and agile manufacturing system in a supply chain (Womack et a.,
1990; Zhang et al., 2003; Storey et al., 2005; Narasimhan et a., 2006). A review of
the SC and Operation Management (OM) literature indicates the inconsistency and
ambiguity regarding to use of terms flexibility, leanness and agility. Therefore, it is
not clear whether these terms are synonyms or distinct concepts. Flexibility is related
to adaptability and versatility; while agility is related to nimbleness, quickness and
dexterity. Therefore flexibility and agility are different conceptually (Kid, 2000).

While flexibility is a measure of the reaction capabilities for change, agility is

a measure of the reaction time to change. Furthermore, flexibility is related to
operational abilities, while agility is typically associated with overall organizational
abilities (DSouza and Williams, 2000; Vokurka and OLeary-Kelly, 2000). Although
flexibility and agility are both associated with the ability to change, we view
flexibility as level of operational abilities, but agility is to be associated with
aggregate organizational abilities. In addition to our view of flexibility and agility as
different concepts, we also posit that flexibility is an antecedent of agility. Leanness,
related to the elimination of waste in supply chain. Leanness focuses on decreasing
cost and process inefficiencies, while agility focuses on reducing reaction time and
increasing responsiveness (Gunasekaran, 1999; Naylor et al., 1999). As these
approaches have been recognized by different researches, the three next sub-sections
describe methodological and conceptual definitions that are for differentiation and
application of the three terms in the supply chain management context.

2.7.1 Supply Chain Flexibility (SCF)

The construct of Supply Chain Flexibility (SCF) is a complex, multidimensional concept that has evolved over the years (Sethi and Sethi, 1990), since the
advent of Flexible Manufacturing System (FMS) or more generally Advanced
Manufacturing Technology (AMT).

54

Flexibility is closely linked to environmental uncertainty (Narain et al., 2000).

Researchers and manufacturing managers contend that flexibility in supply chain is a
strategic imperative that enables firms to cope with uncertainty (Gerwin, 1978; Sethi
and Sethi, 1990; Zhang et al., 2003). The literature review on flexibility reveals that
flexibility is related to adaptability and versatility (MarriamWebster Online
dictionary), and some supply chain scholars and practitioners commonly perceive
flexibility as reactive to change and that SCF has been largely used to provide
adoptive response (Gupta and Goyal, 1989). In other words, flexibility characterized
as a buffer to increased environmental variability or solely as an adoptive responses to
environmental uncertainty. This view point is what Swamidass (1998) termed
defensive strategic user. Defensive firms react to the changes after they have
occurred and try to minimize the impacts (Golden and Powell, 2000).

According to Gerwin (1993), this reactive notion is also shared by American

managers, who view flexibility in this way when they refer to customer
responsiveness or comment on adjusting to the changing needs of customers. In terms
of conceptualization, initially there was not much consistency in the definition and
utilization of the term flexibility (Upton, 1995), which had caused difficulties in
developing valid and reliable measures for this concept (Zhang et al., 2003). This
problem was related to the lack of a well defined theoretical domain (Koste and
Malhotra, 1999). However, conceptual and empirical literature addressing these issues
has been contributing to the clarification of the construct. Table 2.7 shows some
typical definitions identified in literature review from supply chain and operations
literature that exhibit an explicit definition of flexibility.

Gerwin (1987) defines supply chain flexibility as the ability to respond

effectively to changing circumstances. This seminal definition represents the earlier
attempts to conceptualize the term flexibility and, although it has great breadth
(extension), it lacks an explicit connotation.

55

Table 2.7 : Definition of Flexibility

Ability to response effectively to changing circumstances.

Gerwin (1987).

The quickness and ease with which plants can respond to Cox (1989).
changes in market conditions.
The adaptability of a system to a wide range of possible Sethi and Sethi
environments that it may encounter.
(1990).
The ability of manufacturing system to generate high net Ramesesh and
revenues consistently across all conceivable states of the Maliyakal (1991)
nature in which it may be called to function.
The ability to cope with changing circumstances or instability Gupta and Somers
caused by the environment.
(1992).
The ability of the system to quickly adjust to any change in Nagarur (1992).
relevant factors like product, process, loads, and machine
failure.
A response to external uncertainty

Newman et al.
(1993).

The ability of a manufacturing system to change states across Upton (1994, 1995).
an increasing range of volume and/or variety, while adhering
to stringent time and cost metrics.
The ability to respond quickly to changing customer needs at Small and Chen
reasonable price.
(1997).
The capability of an organization to move from one task to Vokurka and
another quickly and as a routine procedure.
Fliedner (1998).
The ability companies to respond to a variety of customer Backhouse and
requirements which exist within defined constraints.
Burns (1999).
Ability of manufacturing system to change states across an Das (2001).
increasing range of volume and/or variety, while adhering to
stringent time and cost metrics.
The organization ability to meet an increasing variety of Zhang et al. (2003).
customer expectations without excessive cost, time,
organizational disruptions or performance losses.
A generic ability to adapt to internal and/or external Holweg (2005).
influences.
Newman et al., (1993) characterize flexibility as a competitive response to
environmental uncertainty due to its accommodating nature. Zhang et al., (2002)
define flexibility as the firms ability to meet an increasing variety of customer
expectations while keeping costs, delays, organizational disruptions and performances
losses at or near zero. Vokurka and Fliedner (1998) conceptualize flexibility as the

56

capability of an organization to move from one task to another quickly and as a

routine procedure. They indicate that each situation is defined ahead of time so that
procedures needed to manage it are in place. This conceptualization concerns with
Wadhwa and Rao (2003) claim that flexibility is a perquisite to become agile. The
conceptual literature indicates that the domain of any type of flexibility is defined by
four building blocks of range-numbers, range-variety, mobility and uniformity (Slack,
1983; Gerwin, 1987; Upton, 1994; Koste and Malhotra, 1999). Recently, (Koste et al.,
2004) empirically established that these for building blocks of flexibility could be
represented by two underlying factors, which they termed scope and achievability.

Scope captures the flexibility response in terms of the full range and diversity
of options, while achievability captures the short-and long-term penalties that the
organization incurs involving the flexible response. Zhang et al., (2003) maintained
that SC flexibility consists of SC competencies and SC capabilities. SC competencies
include machine flexibility, labor flexibility, material handling flexibility, routing
flexibility, while SC capabilities include volume, mix flexibility and logistics
flexibility. For the purpose of this research, five dimensions of flexibility are believed
to have an impact on supply chain performance.

These five dimensions are: volume flexibility, mix flexibility, labor flexibility,
market flexibility and logistics flexibility. Volume flexibility has been defined as the
extent of change and the degree of fluctuation in aggregate output level which the
system can accommodate without incurring high transition penalties or large changes
in performance outcomes (Koste and Malhotra, 1999). Similarly Zhang et al., (2003)
defined volume flexibility as the ability of the organization to operate at various batch
sizes and/or at different production output levels economically and effectively.

Mix flexibility has been defined as the number and variety (heterogeneity) of
products which can be produced without incurring high transition penalties or large
changes in performance outcomes (Koste and Malhotra, 1999) and as the ability of the
firm to produce different combinations of products economically and effectively
given certain capacity (Zhang et al., 2002). These two supports the nation of agility
and responsiveness in the market demand in a global and competitive environment
may require different volume and range of products and different varieties in order to
57

satisfy demands and customer needs at various markets throughout the world. Koste
and Malhotra (1999) defined labor flexibility as the number and heterogeneity
(variety) of tasks/operations a worker can execute without incurring high transition
penalties or large changes in performance outcomes. In a same way labor flexibility
has also been defined as the ability of the workforce to perform a broad range of
manufacturing tasks economically and effectively (Zhang et al., 2003). Market
flexibility is the ease with which the supply chain system can adapt to a changing
market environment. This supports the importance of a market orientation in a supply
chain management. Logistics flexibility is the ability of the firm to effectively and
rapidly respond to customer requirements for deliver, support and service (Zhang, et
al., 2002; Zhang et al., 2005). So logistics flexibility takes care of a fluent material
flow through manufacturing and a rapidly delivery to the customers. Logistics
flexibility itself has four components: Physical supply flexibility and purchasing
flexibility, which are the competences, and physical distribution flexibility and
demand management flexibility, which are the customer facing capabilities.

Finally, it seems that flexible supply chain to be an enabler to providing

superior value to the customers, and flexibility is as a means to agility and
responsiveness rather than an end in itself.

2.7.2 Supply Chain Leanness (SCL)

Significant researches have been done in recent years in the idea of lean
supply chain practices (Womack et al., 1990), and the wider concepts of the lean
enterprise (Womack and Jones, 1996). The focus of lean approach has essentially
been on the elimination of waste or muda. A lean system is characterized by the
never ending pursuit of the elimination of waste and it is doing more things with less
(Christopher, 2000; Christopher and Towill, 2000; Naylor et al., 1999; Smart et al.,
2003). The upsurge of interest in lean supply chain can be traced to the Toyota
Production Systems (TPS) with its focus on the Just-In-Time (JIT), reduction and
elimination of waste (Ohno, 1988). However, the origins of lean are certainly visible
in Spit five aircraft production in the UK in the Second World War, and Kierstu dates
back to the US automotive industry in 1915 (Towill et al., 2000).

58

In the context of SCM, it has been argued that lean concepts work well where
demand is relatively stable and hence predictable and where variety is low.
Conversely, in those contexts where demand is volatile and the customer requirement
for variety is high, a much higher level of agility is required (Christopher, 2000). Lean
supply chain has several benefits such as; inventory reduction (raw material, work in
process and finished goods), reduced cycle times and reduced manufacturing costs
among others (Womack and Jones, 1996; Womack et al., 1990). Many firms have
reduced their levels of inventory to less than a day. For example Dell computer has
reduced its inventory levels to just 3 to 5 hours (Byrd and Davidson, 2003). Cycle
time reduction is a way to meet the goal of waste reduction by eliminating or
minimizing the waste of time. It is helpful to think of cycle time as the elapsed time
between customer inquiry and the customer need being met (MasonJones and
Towill, 1999).
Lead time compression is an essential characteristic of both lean and agile
system (MasonJones et al., 2000; Naylor et al., 1999). Lean systems, as stated
above, pursue the elimination of all forms of waste, of which time is one; whereas
agile systems strive to reduce lead time in order to be more responsive to customer
needs (MasonJones et al., 2000; Naylor et al., 1999). Thus time reduction is
sufficient for achieving lean but is only one condition for achieving agility. Therefore
we can infer that a lean supply chain, especially from the stand point of time
compression, is a suitable antecedent to an agile supply chain.
Womack and Jones (1996) provide five lean principles: Value, the value
stream, flow, pull and perfection, described in the following way:
1. Value is defined by the ultimate customer;
2. The value stream is the set of all the specific activities required to being a specific
product though the internal value chain;
3. Flow is about making the value creating steps flow;
4. Pull refers to using a pull schedule; and
5. Perfection is concerned with making improvement a continuous effort.
Different researchers have identified the key characteristics of lean supply
chain based its definitions and applications as are summarized in Table. 2.8 Its shows
that pull repetitive production system, make to order (based on customer wants),
customer oriented approach and daily schedule adherence are some key characteristics
of lean manufacturing system and lean supply chain management.
59

Table 2.8 : Key Characteristics of Lean Supply Chain

Characteristics

Source and description

Repetitive production

Womack and Jones (1996): Pull system, take time

Naylor et al. (1999): Level schedule
Aitken et al. (2002) : Pull material flow
Shah and Ward (2007): Pull inventory system

Daily schedule adherence

Womack and Jones (1996): Make exactly what the

customer wants and just when the customer wants it.
Lewis (2000) : Exactly when needed
Shah and Ward (2003): Pace of customer demand

Floworiented layout

Womack and Jones (1996) : Flow

Lewis (2000) : Flow directly towards the customer
Aitken et al. (2000): Pre-defined processes
Shah and Ward (2003):Streamlined system
Shah and Ward (2007): Equipment layout for
continuous flow of material

Lewis (2000) found that the success of lean production system is dependent
upon contextual factors such as type of market, dominant technology and supply
chain structure. Furthermore, he noticed a trade-off between lean supply chain and
innovation, such that the more successfully a firm applies lean principles, the less it
will engage in general innovative activity. Naylor et al. (1999) described lean supply
chain as developing a value stream to eliminate all waste, including cost, time and to
ensure a level schedule. A level schedule means that the supply chain and
manufacturing process must be kept away from volatility, protected from uncertainty
and variation. This makes high capacity utilization possible, thus leading to lower
supply chain system costs.
2.7.3 Supply Chain Agility (SCA)
Agility is a business-wide capability that embraces organizational structures,
information systems, logistics processes and in particular, mindsets. A key
characteristic of an agile organization is flexibility. According to the Websters
dictionary; agility is defined as, the power of moving quickly and easily. In other
words, agility is the ability to adapt to changes, and it possesses to attributes the
ability to adopt, and the speed of adaptation. The fundamental tenet of agility is the
ability to adapt to changes as dictated by the competitive market place. Clearly,
flexibility is a key underlying component of agility. Consequently, for a supply chain
to be agile, it must first be flexible.
60

Agility is the ability to produce a broad range of low cost, high quality
products with short lead times in varying lot sized built to individualized customer
specification (Narasimhan and Das, 1999). Goldman et al. (1995) asserts that agility
is a comprehensive response to the business challenges of profiting from rapidly
changing, continually fragmenting, global markets for highquality, high
performance, customer configured goods and services. Sharifi and Zhang (2001)
suggest that agility conceptually encompasses two major factors:
1. Responding to changes (anticipated and unexpected) in due time; and
2. Exploiting and taking advantage of changes as opportunities.

Table 2.9 presents some typical definition identified in literature review from
supply chain and operations literature that exhibit and explicit definitions of agility.
Table 2.9 : Definitions of Agility
Definition

Reference

The ability to accelerate the activities on a critical path Kumar and Motwani
that commences with the identification of a market need (1995).
and terminates with the delivery of a customized product.
A comprehensive response to the business challenges of Goldman et al. (1995).
profiting from rapidly changing, continually fragmenting,
global markets for high quality, high performance,
customer configured goods and services.
The ability to produce and market successfully a broad Vakurka and Fliedner
range of low cost, high quality products with short lead (1998).
times in varying lost sizes, which provide enhanced value
to individual customers through customization.
The ability of a supply chain to respond quickly and McGaughey (1999).
successfully to change.
The capability of supply chain system surviving by Gunasekaran (1999).
reacting quickly and effectively of changing markets,
driven by customers designed products and services.
The ability of enterprises to cope with unexpected changes Zhang and Sharifi
to survive unprecedented threats from the business (2000).
environment and to take advantage of changes as
opportunities.
Agility is the ability to both create and respond to change Highsmith (2004).
in order to profit in a turbulent business environment.
A set of interlinked changes in marketing production Storey et al. (2005).
design and organization.
Ability to efficiently change operating states in response to Narasimhan et al.
uncertain and changing demands placed upon it.
(2006).
61

Hence, an agile supply chain can be characterized with respect to different

attributes as are summarized in Table 2.10.

Table 2.10 : Key Characterized of Agile Supply Chain

Characteristic

Source of description

High customization Kidd (1994) : Highly customized products

capability
Goldman et al. (1995): Quick understanding of unique
requirements of customers and rapidly providing it
Gunasekaran (1998): Customerdesigned products
Sharifi and Zhang (2001): Product model configuration
flexibility
Efficient
handling

variety Vokurka and Fliedner (1998): Broad range of products

Sharif and Zhang (2001): Providing a wide range of choices
Tsourveloudis and Valavanis (2002): The ease of changes
between products

New product agility Sharif and Zhand (1999, 2001) : High rate and quick
and agile deliver
introduction of new products
Aitken et al. (2002): Design and deliver products quickly
and rapid adjustment of products design and change the
delivery locations
Some attempts have been made towards differentiating agility from flexibility.
For instance, Wadhwa and Rao (2003) contend that an agile firm should be capable of
coping with unpredictable changes in market or customer demands. They argue that
the major distinction between flexibility and agility is the character of the situation
requiring change. Flexible changes are response to known situations where the
procedures are already in place to manage the change. Conversely, agility sub sums
the notion of flexibility by adding the ability to respond to unpredictable changes in
the market or in customer demands. This argument concerns with Backhouse and
Burns (1999) conceptualization of agility. They reason that agility is the ability of a
firm to adopt of unforeseen changes in the external environment, while flexibility is
the ability to firm to respond to a variety of customer requirements exist within
defined constraints. Furthermore, agility has been differentiated from lean in that the
letter is a response to competitive pressure with limited resources, while the former is
a response to complexity brought about by constant and typically unforeseen changes
(Sanchez and Nagi, 2001). In other word, leanness may be an element of agility in
certain circumstance; by itself it will not be able to firm to meet the precise needs to

62

the customers more rapidly. Figure 2.7 suggests that the three critical dimensions of
variety, variability (or predictability) and volume determine which approach agile or
lean make greatest sense.

Figure 2.7 : Agile or Lean

Hi

Agility is needed in less

predictable environments where
demand is volatile and the
requirement for verity is high.

AGILE

Variety/
Variability
LEAN
Low
Low

Lean works best in high

volume,
low
verity
and
predictable environments.

Hi
Volume

Source : Christopher (2000).

Many authors have considered that implementation of real supply chain agility
is highly complicated and needs an integrated relationship between supply chain
members. But some models have been introduced for enabling the agile supply chain.
Christopher and Towill (2001) offer a three level model specifies programs of the
agile supply chain (see figure 2.8).

Figure 2.8 : Three level model for enabling the SCA

Source : Chirstopher and Towill (2001).

63

In this three level mode, level 1 represents the key principles that underpin the
agile supply chain, rapid replenishment; and postponed fulfillment. Level 2 identifies
the individual programs such as lean production, organizational agility, and quick
response which must be implemented in order for the level 1 principle to be achieved.
Level 3 specifies individual actions to be taken to support Level 2 programs, for
example, time compression, information enrichment, and waste elimination. Not all
the characteristics shown in figure 2.8 may be necessary in any one specific
market/manufacturing context, but it is likely that the agile supply chain will embody
many of these elements. What is certain is that much of the conventional wisdom
concerning manufacturing strategy, supplier relations and distribution will have to be
challenged if real agility is to be achieved from within the supply chain.

2.8 Barriers to Effective Supply Chain Management (SCM)

From the literature in Table 2.11, the potential barriers or resisting forces to an
effective supply chain management are intimidating. The resisting forces to strategic
SCM come both from the nature of the organization itself and the people that
compose the organization. As it was mentioned in previous sections, an effective
management of supply chain refers to collaboration and long term partnership of
supply chain members. So, there are some barriers in meanwhile which may limit
collaboration of these members in a supply chain processes. Most of the barriers to
SCM are related to industry complex and heterogeneous structure (Matopoulos et al.,
2007). Generally, these barriers can be classified under one of two headings: interfirm rivalry and managerial complexity (Park and Ungson, 2001). Inter-firm
rivalry is a misalignment of motives and behaviors among allying partners within the
strategic supply chain (Park and Ungson, 2001). Some barriers under this category
include poor collaboration among chain partners, lack of partners trust and lack of
partners commitment. In short, inter firm rivalry is the tendency for allying partners
to compete rather than willingly co-operating. Absent a willingness to co-operate, a
supply chain will not be able to attain lower costs and higher returns on investments.
Further, irregular collaborative meeting among supply chain partners hinder
managers opportunities to share with one another concerns, weaknesses and best
practices (Stanley et al., 2008).

64

Other barriers to effective SCM fall under managerial complexity or

misalignment in allying firms processes, structure and culture (Park and Ungson,
2001). Under the umbrella of managerial complexity, barriers include information
system and technological incompatibility, inadequate measurement systems and
conflicting organizational structures and culture (Sheridan, 1999; Tyndall et al., 1998;
Quinn, 1997). Because many firms are comfortable using their systems for only their
own tasks, it is not surprising to see inconsistent information and technology system
and organization culture as barriers. People are change averse and unwilling to share
information for fear of exposing their weakness and secretes to others. If SCM is to be
implemented across company borders, a revamp in attitude and thinking is necessary
(Stanley et al., 2008). Whipple and Frankel (2000) commented:

a successful supply chain management requires a modifying of

habits and knowledge of the people involved and to be willing to
modifying their business practices, policies, values, processes and
to change relationships between partners.

65

Table 2.11 : Literature review barriers to SCM

Barriers
Inter firm rivalry
Internal and
external turf wars
Poor SCM
planning
Lack of vision of
SCM
Lack of channel
trust
Executive
commitment
Poor SCM
understanding

1 2 3
9

4
*

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Total
9

* * *
*
*

* * *
*

* *

* *

* * *

* * *

*
*

*
*

*
*

* *

* *

* *

* *

*
*
*

*
*

16
10

*
*

7
7

Managerial
complexity
IS/IT deficiencies
*
*
*
* *
*
* *
*
*
10
Organizational
*
*
*
*
* *
*
* *
9
structure/ culture
Lack SC
*
*
*
*
*
*
* *
8
measurement
Lack alliance
*
*
* *
* *
*
7
guidelines
Sources : 1- Akkermans and van Doremalen (2004); 2 - Andraski (1998); 3 - Barratt (2004a); 4 - Barratt (2004b); 5- Bender (2000); 6 - Cox (1999); 7Frohlich(2002); 8 - Inger et al.(1995); 9- Johoson et al.(2001); 10 - Kilpatrick and Factor (2000); 11- La Londe (2003); 12 - La Londe and Masters
(1994); 13 - Lee (2004); 14 Lonsdale (1999); 15 - Lummus et al. (1998); 16 - Mentzer et al. (2000); 17- Milligan (1999); 18 - Moberg et al.(2003); 19
- Monczka and Morgan (1997); 20 - Monczka and Morgan (1998b); 21 - Monczka and Morgan (1998a); 22 - Morgan (1997); 23 - Neuman and
Samuels (1996);24 New (1997); 25 Pitera (2000); 26 Quinn (1997); 27 Quinn (1999); 28 Roux et al.(1999); 29 Sheridan (1999);30
Smagalla (2004); 31- Timme and Williams-Timme (2000);32 Tyndall (2000);33 Tyndall et al.(1998);34 van Hoekm et al.(1998)

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2.9 Benefits of Effective Supply Chain Management (SCM)

Supply chain management puts firms in a position of achieving better
performance (Yahia, 2009). To reach there, all participating members should make all
necessary arrangement of collaborative practices, play according to rules, struggle to
achieve the leading supply chain benchmarks, and follow all ethical principles to
make things work well. The importance of SCM to make better performance has been
emphasized by several writers (Fernie, 1995; Lawrence, 1997; Morton, 1997; Wood,
1997). Table 2.11 offers a sample of the effective SCM benefits literature. Of the
discussed benefits, increased inventory turnover, increased revenue and cost reduction
across the chain are the most sought after (Daugherty et al., 2005; Attaran, 2004;
Ferdows et al., 2004; Leonard and Cronan, 2002, Fine, 2000). An effective SCM not
only enables partners to reduce one anothers costs but also allows inventory to cycle
through to customers faster (Stanley et al., 2008). Two other core benefits of SCM
include decreased order cycle times and greater product availability (Leonard and
Cronan, 2002; Stank et al., 1999; Sheridan, 1999; Van der Vorst and Beulens, 1999).

Close relationships with suppliers leave room for special orders in unique
times of high demand, helping satisfy the customer expectations. Addition benefits
are market responsiveness, improving lead-time, improving customer satisfaction, and
remaining competitive (Chin et al., 2004). Overall, SCC potentially creates value for
all members in the chain, but such benefits are different in importance and degree
among partners in a supply chain (Agrawal and Pak, 2001). Mainly, these benefits are
classified into customer focus benefits and company focus benefits (see Table 2.12)

67

Table 2.12 : Literature review benefits to SCM

Benefits
1 2 3
4
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Total
Increased inventory
* *
*
*
*
* *
*
*
* *
* * *
* * *
15
turnover
Increased revenues
*
*
*
*
* * *
*
*
* * *
12
SCM cost reductions
*
*
*
*
*
* *
*
*
*
10
Product availability
*
*
*
* * *
*
*
*
*
10
Decreased order
* *
*
*
* * *
*
*
*
10
cycle time
Responsiveness rate
*
* *
*
*
*
*
7
Economic value
*
*
*
*
*
5
added
Capital utilization
*
*
*
*
4
Decreased time to
*
*
*
*
4
market
Reduced logistics
*
*
2
cost
Sources: 1 - Agrawal and Pak (2001); 2 - Alber and Walker (1998); 3 - Allnoch (1997); 4 - Attaran (2004); 5- Balsmeier and Voisin (1996); 6 - Callioni et al.(2005); 7Christopher and Ryals (1999); 8 - Closs et al. (1998); 9 - Cooke (1997); 10 - Daugherty et al. (2005); 11- Ferdows et al. (2004); 12 - Hondfield and Pannesi (1995); 13 Hult et al. (2004); 14 - Inger et al. (2004); 15- Jayaram et al. (2004); 16 - Kaas and Ohl (2002); 17- La Londe and Masters (1994); 18 - Lee (2004); 19 - Leonard and
Cronan (2002); 20 - Mentzer et al. (2000); 21- Metz (1998); 22 - Monczka (1996); 23 - Rajib et al. (2002); 24 Sabath and Frentzel (1997); 25 Sheridan (1999); 26
Silverstein (2002); 27 Stank et al. (1999); 28 Tan et al. (1998); 29 Timme and Williams-Timme (2000); 30 Tyndall (2000); 31 van der Vorst and Beulens (1999); 32
Vergin (1998); 33 Vokurka (1998); 34 Waller et al. (2000)

68