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1. Introduction
With the increasing advances in technology, and information technology in particular,
manufacturing companies, their suppliers and their distributors can all be linked
together in a seamlessly integrated organization. Supply chain processes that cross
organizational boundaries can, therefore, be more easily defined, analysed and
improved to provide companies with a sustainable competitive advantage. As a result,
supply chain processes are becoming more strategic rather than transactional (Niezen
and Weller, 2006). This growing strategic importance of supply chain management has
motivated the need for managers to more clearly understand the links among products,
the supply chain processes used to produce and deliver them, and the strategy used to
manage the supply chain activities. To help managers better understand these
relationships, researchers and practitioners often use simple but effective supply chain
frameworks. Such conceptual frameworks can: The International Journal of Logistics
Management
. provide a dashboard view that, in conjunction with key performance metrics, can Vol. 21 No. 1, 2010
pp. 127-151
be used for overall performance assessment; # Emerald Group Publishing Limited
0957-4093
. assist managers in making rational strategic decisions; DOI 10.1108/09574091011042214
IJLM . effectively communicate the supply chain strategy to employees.
21,1 Given the complexity of supply chain management, it is not surprising that there exists a
number of frameworks that attempt to provide insights into the relationships among
products, strategy and supply chains (we review the relevant literature in the next section).
Yet, the linkages between products, their respective supply chain strategies and respective
supply chain processes have not been clearly delineated in existing frameworks.
128 Beginning in the late 1960s with the work of Skinner (1969) early conceptual models
focused primarily on understanding the relationships between products and production
processes, whereas subsequent models focused on understanding how products and
supply chains interact, with no focus on distinguishing between production and logistics.
Nevertheless, as Lambert et al. (2005) acknowledges, there still remains a need for a
broader supply chain framework that can "support the execution of corporate strategy
by enabling the alignment of all necessary resources required to respond to the demands
of the market". Our aim is thus to contribute to this stream of research by proposing a
conceptual framework that can clearly and succinctly communicate a firm’s strategic
vision as it relates to a product and its supply chain. In contrast to previous frameworks,
we specifically focus on both manufacturing and logistics processes and discuss how
they should be aligned to achieve the strategic objectives of the supply chain.
Specifically, we highlight the need for alignment between the strategic capability of a
supply chain (leanness, leagility or agility) and the operational objectives of its
manufacturing and logistics processes (efficiency or flexibility). The foundation of our
framework is based on indentifying four representative supply chains (build-to-stock
(BTS), assemble-to-order (ATO), make-to-order (MTO), and design-to-order (DTO)) that
are appropriate for different products depending on the product’s characteristics. We use
the manufacturer as our focal point in the supply chain. As we later discuss in more
detail, our framework can be used by researchers interested in empirically testing a
product-supply chain matrix, along the lines of prior empirical tests that have established
Hayes and Wheelwright’s (1979a, b) product-process matrix. Our framework can also
benefit educators and managers in a number of ways, including:
. emphasizing the need for appropriately mapping a product’s strategic
positioning with both the corresponding production and logistics processes and
also the supply chain capabilities available to the firm;
. evaluating and comparing a product’s competitive positioning with that of
similar products and supply chains;
. evaluating the need for agility, leanness or leagility in a product’s supply chain;
. highlighting the strategic implications of changing the relative positioning of a
product and its corresponding supply chain; and
. facilitating the planning of a product’s growth strategy by selecting the
appropriate supply chain processes for both existing and new products and
markets.
We proceed by reviewing the pertinent literature and discussing our contributions and
how they relate to existing work in section 2. Section 2 presents four well known
supply chains that provide the building blocks for our unified framework. Section 2
describes our framework in detail, section 2 compares our framework with two
prominent supply chain process frameworks and section 2 summarizes our findings
and concludes.
2. Literature review Supply chain
Several frameworks have been previously developed that classify and match products processes
with processes and/or supply chains.
and strategy
2.1 Products and the production process
Hayes and Wheelwright (1984, 1979a, b) first introduced the now classic product-
process framework shown in Figure 1 for aligning products with their corresponding
production processes. The main objective of this framework was to assist managers in
129
strategically matching a process type (for example, continuous, assembly line, batch,
job-shop, or project) with a product based on its volume, mix, and demand variability
characteristics. High volume, low variety products are best produced with a continuous
process (for example, an oil refinery or a paper mill), medium volume and medium
variety products are best suited for an assembly line or batch process (for example, an
automobile assembly line or a fast food restaurant), and low volume, high variety
products are best made with a job-shop or project-type process (for example, a printing
shop or movie production).
Aligning products with production processes in this way clearly highlights the
problems that can occur when a product is produced with the wrong process. For
example, if a continuous process is used for the production of low volume, high variety
products, unacceptably high out-of-pocket fixed costs are incurred due to the high capital
investment that continuous processes typically require and the lack of volume to justify
those high fixed costs. At the opposite end of the spectrum, firms with growing product
volumes that don’t make the necessary investments in capital in order to reduce their
variable costs will find themselves with high opportunity costs as their customers shift
their business to competitors that offer comparable but lower priced products.
There have been many subsequent studies that have discussed and empirically tested
the product-process matrix attesting to its continued influence and interest (see Devaraj
et al., 2001; Kemppainen et al., 2008 for reviews). Several of the studies have found
empirical support for the product-process matrix, while others suggest ways to enhance
it. None of these studies, however, address the need for connecting the production process
with other supply chain processes. Our proposed framework attempts to integrate
Figure 1.
Hayes-Wheelwright’s
product-process matrix
IJLM product characteristics with not only the production process, as does the Hayes and
21,1 Wheelwright’s framework, but also with the supply chain process in general.
Figure 2.
Fisher’s product-supply
chain matrix
innovative products. This suggests four different types of supply chains, which Lee Supply chain
defined as: processes
(1) ‘‘efficient’’, appropriate for functional products with stable supply processes and strategy
such as non-perishable food products;
(2) ‘‘risk hedging’’, appropriate for functional products with unstable supply
processes, such as hydroelectric power;
131
(3) ‘‘responsive’’, appropriate for innovative products with stable supply processes,
such as fashion apparel; and
(4) ‘‘agile’’, appropriate for innovative products with unstable supply chains, such
as new technology product introductions.
Although supply uncertainty is an important distinction, we do not address it in our
framework. However, despite the inclusion of supply uncertainty, Lee’s framework does
not consider which production and logistics processes are most appropriate for each
supply chain type, as we do. Furthermore, his framework does not consider when efficient
or agile supply chains might be more appropriate for the more common supply chains
with stable (certain) supply. Specifically, Lee’s framework suggests that responsiveness is
the ultimate goal for innovative products with stable supply, but does not go into detail on
how responsiveness relates to agility or flexibility. Reichhart and Holweg (2007) recently
provided a clarification of the relationship between responsiveness, flexibility and agility,
which they noted was lacking from prior literature. They defined responsiveness as a form
of external flexibility (visible to the customer and triggered by a customer order). External
as well as internal flexibility (which focuses on manufacturing and inbound logistic
processes) are key prerequisites to a company’s agile capabilities. We incorporate this view
of agility within our framework as we discuss in detail in section 3.
Overall, the goal in developing these frameworks is to provide a better
understanding of how product characteristics relate to supply chain characteristics,
and the need for alignment between the two. Again, what appears to be currently
lacking is a more unified view, from the manufacturer’s perspective, of how product
characteristics should relate not only to production processes, but also to logistics
processes, and based on these characteristics what the competitive priorities of the
manufacturer and its supply chain should be. Our framework builds upon this
literature by providing a clearer and more integrated perspective of these concepts.
2.4 Summary
Existing literature on aligning products with processes has focused primarily on:
. the interface between products and production processes;
. the interface between products and supply chains; and
. descriptions of supply chain processes.
Figure 3 provides a summary of representative papers in the literature and the various
subsets of issues they consider. The figure illustrates that the existing literature does
not provide an integrated link between product characteristics, the transformation (or
production) processes used to produce these products, the logistics processes required
to source components and raw material and deliver the finished products to customers,
and the strategic focus of the supply chains. The goal of this paper is to address this
gap by providing such a link, which will ultimately lead to better decision making.
Figure 3.
Literature summary and
comparison
3. Defining four key supply chains Supply chain
Before introducing the four types of supply chains that provide the building blocks of
our framework, we define the three key supply chain elements identified by Lambert
processes
et al. (2005) required to make products available to customers: and strategy
(1) the supply chain network;
(2) the supply chain processes the network operates with and supports; and
(3) the supply chain decisions required for managing the network.
133
Simchi-Levi (2006) defines a supply chain network as the infrastructure (suppliers,
manufacturing centres, and warehouses) and the material (raw material, work-in-
process, and finished goods inventory) that flows between the facilities to satisfy end-
customer demand. Davenport et al. (1995) define a business process as a set of activities
with specified business outcomes for customers. Accordingly, supply chain processes
are defined as the set of activities used to carry out the movement of material through
the supply chain network. As suggested by the Council of Supply Chain Management
Professionals, supply chain processes include both production and logistics processes.
In particular, logistics processes include the activities relating to the forward and
reverse flows and storage of goods, such as transportation and warehousing. Finally,
supply chain management represents the management (planning, organizing,
implementing, and controlling) of supply chain processes. For brevity and convenience,
we use the term supply chain to refer to the supply chain network, the supply chain
processes, and the supply chain management for a given product. The relationships
between these terms are shown in Figure 4.
The objective of our framework is to provide a better understanding of supply chain
choices from the viewpoint of a manufacturer that produces a single product or family of
similar products. If a company has a large number of business units, each producing
dissimilar products in terms of their demand and process characteristics, then its senior
management should apply our proposed framework separately to each business unit.
Our framework builds upon four well-known supply chains that are differentiated
by:
. the types of products they make;
. their production processes; and
. their logistics processes.
Figure 4.
Relationship among
supply chain terms
IJLM These four supply chains, each of which also has its own primary strategic focus, are:
21,1 BTS, ATO, MTO, and DTO. We recognize that these four supply chains represent four
specific points on a continuum that ranges from the BTS process to the DTO process.
Several operations management textbooks (e.g. Davis and Heineke, 2004; Krajewski et al.,
2007) distinguish between ‘‘make to stock’’/‘‘build-to-stock’’, ‘‘make-to-order’’ and hybrid
processes. There has also been recent interest in the academic literature in understanding
134 and comparing these supply chain types. For example, Gunasekaran and Ngai (2005)
reviewed the concepts and classified the literature relating to build-to-order supply
chains as well as suggested directions for further research in this area. Skipworth and
Harrison (2006) considered three supply chains, an engineer-to-order (which we refer to
as DTO), a MTO, and a hybrid supply chain they term ‘‘form postponement’’ The SCOR
model also distinguishes between three types of ‘‘products’’ (as opposed to supply
chains): stocked products, MTO products, and engineer-to-order products, detailing in
each case how each of five supply chain processes (plan, source, make, deliver, and
return) vary depending on the type of product involved. While the four supply chains we
discuss, and particularly the BTS and MTO, commonly appear in the press and in the
academic literature, all four, to our knowledge, have not been previously brought
together in a unified framework as we present here. We next discuss each supply chain in
detail. The main characteristics of each supply chain are summarized in Figure 5.
135
Figure 5.
Comparison of supply
chain characteristics
operations and information sharing challenging. Therefore, this type of supply chain is
the most prone to the bullwhip effect (Lee and Whang, 1997).
Another important characteristic of BTS supply chains is that direct contact with the
end consumer happens only at the retail level. Therefore, since these commodity-type
products are hard to differentiate from competitors, retailers tend to have significant
power in these supply chains. For example, supermarkets charge slotting allowances to
manufacturers in exchange for the space allocated to their products and large retailers
such as Wal-Mart often dictate product delivery schedules, order payment terms and
even quality levels for the products they carry in their stores (Facenda, 2004).
As implied by Fisher’s (1997) framework, efficiency is the primary focus for both
manufacturing and logistics processes of BTS supply chains. High volume
manufacturing processes emphasize efficiency through automation (such as Barilla
does with pasta production) and large volume assembly lines (such as those used by
commercial bakeries). High volume logistics processes are likewise geared towards
ensuring that sourcing, warehousing and transportation costs are minimized. For
example, warehousing costs are reduced through the cross-docking concept developed
by Wal-Mart, while transportation costs are minimized through the shipment of
IJLM products in full truckloads. Purchasing in large volumes can further increase the
efficiencies of BTS supply chains.
21,1 3.1.4 Build-to-stock supply chain strategy. BTS supply chains must relentlessly focus
on minimizing costs. For example, Posco, a Korean-based steel manufacturer, has
become the largest steel processor in the world by emphasizing efficient BTS
operations based on cost cutting lean principles such as JIT production (Lee, 2002). As
the Posco example illustrates, efficient production and logistics processes are enablers
136 of the lean paradigm. Lean principles originally aimed to improve manufacturing
processes by eliminating waste and were first practiced in the Toyota Production
System (Ohno, 1986). Goldsby et al. (2006) describe how the meaning of lean has been
progressively expanded over the past two decades to apply to the extended supply
chain enterprise. In addition to representing a set of production and associated logistics
tools, it is now often regarded as a strategic capability. Christopher (2000) emphasizes
that lean concepts work best when demand is relatively stable and product variety is
low, as characterized by BTS supply chains. Moreover, Mason-Jones et al. (2000)
describe cost as the ‘‘market winner’’ (as opposed to just a market qualifier) for a lean
supply chain. It is therefore within this context that our framework relates BTS supply
chains with the lean capability and its emphasis on minimizing waste and costs.
Lean supply chains typically mandate close collaborative relationships with
suppliers (Choi and Wu, 2009). Such cooperative relationships are possible due to the
large volume, long-term commitments that can be made among the manufacturer and
its suppliers. Close supplier relationships allow for information sharing among supply
chain members that can reduce costs and counteract the bullwhip effect (Agrawal et al.,
2009). Therefore, information sharing initiatives such as quick response, efficient
consumer response, and vendor managed inventory are common in BTS supply chains
(Sharland et al., 2003; Balakrishnan and Geunes, 2004). For example, in the early 1990s
Marks and Spencer, a UK-based retailer instituted vendor managed inventory practices
with key suppliers of its stable products resulting in significant cost savings for both
the suppliers and Marks and Spencer (Storey et al., 2005).
Figure 6.
Aligning products with
supply chain processes
and strategy
IJLM this case, a BTS supply chain operates with efficient production but flexible logistics
processes. Clearly there is a missed opportunity here. Even though the production
21,1 function appropriately focuses on efficient operations to address the high-volume
demand, the transportation, and sourcing functions are inappropriately focusing on
agility (at an unnecessarily higher cost), thus reducing the opportunities for low cost
sourcing and transportation of the goods to be stocked for final purchase. Such a
scenario would correspond, for example, to Barilla or Dell putting more emphasis on
144 hedging strategies with their suppliers (which is appropriate when there is a lot of risk
due to highly uncertain supply), when in fact the emphasis should be on cultivating
relationships with specific suppliers to ensure lean and just-in-time deliveries.
At the other extreme, misalignment also occurs in the lower left corner of Figure 6. In
this case, a DTO supply chain operates with flexible production but efficient logistics
processes. Such misalignment can again cause potentially high opportunity costs
because even though production appropriately focuses on low volume, high variety
output, the supply chain cannot source or deliver these products with the same levels of
flexibility. It would be as if Sherrill Furniture or Electric Time focused exclusively on the
cost savings achieved when sourcing and transporting raw materials in large batches, or
when delivering products to their customers. The focus should be on having the
appropriate variety of raw materials in place and the appropriate delivery structure so
that production and final delivery are not delayed and ensure a high quality product.
Finally, we should emphasize the applicability of the product-supply chain matrix in
Figure 6 for various supply chain ownership structures and the importance of
applying the framework separately to each product line.
With respect to supply chain ownership structure, the product-supply chain matrix
applies even when manufacturing is outsourced, or when the manufacturer sells directly
to the end customer. Consider, for instance the case where the brand owners (who design
or sell the product) outsource its manufacturing. Our framework suggests that the brand
owners would need to outsource to the appropriate manufacturing company based on
how the manufacturer’s processing capabilities relate to the overall supply chain strategy
for the product. For example, if the brand owners operate with a DTO supply chain, they
should then choose a manufacturing company based on the flexibility of their production
processes. On the other hand, if the brand owners sell high volume, undifferentiated
products with a BTS supply chain, they should choose a manufacturing company with
production processes that focus on efficiency as well as arrange for the efficient
transportation of the final products to the end customers. To illustrate, consider the case
of Woolworths, a U.K. retailer that sells a million plastic Christmas trees each year
(Christopher et al., 2006). Woolworths (the brand owner in this case) outsources these
trees mainly to Chinese manufacturers. Because Woolworths have very accurate product
demand, they can place orders as much as six months in advance and achieve significant
cost savings in this BTS supply chain with little risk.
With respect to product categories, successful companies with multiple product
lines should consult the product-supply chain matrix in Figure 6 and create specialized
supply chains depending on each product line’s characteristics. Cisco, for example,
uses a DTO supply chain for their highly customized, low volume networking products
choosing vendors based on their proximity to the main markets. For its wide variety of
mid-value products, Cisco operates with an ATO supply chain employing vendors in
low-cost countries that build core sub-assemblies, which are then customized by Cisco.
And for its standard, high volume products, Cisco maintains a BTS supply chain that
uses contract manufacturers in low-cost countries (Lee, 2004).
5. Comparisons with existing process-oriented supply chain frameworks Supply chain
Our discussions thus far emphasized the need for aligning the production and logistics processes
processes of a product with its demand characteristics and for matching supply chain
types with products. We next discuss how our framework relates to the two most and strategy
prominent process-oriented supply chain frameworks introduced in the literature
review in section 2.3. The SCOR framework consists of five operations-based processes
(plan, source, make, deliver, and return) but does not include other key processes such 145
as sales and marketing, or new product development. As Lambert et al. (2005) deduces,
the SCOR model focuses primarily on operations (rather than supply chain) strategy.
Our proposed framework is compatible with the SCOR approach, while taking a
broader view of supply chain strategy by clearly identifying the necessary strategic
capabilities for each of the four supply chains we defined in detail. Figure 7 highlights
how the five SCOR processes relate to our framework.
We should emphasize that although we regarded reverse logistics, including product
returns, as part of logistics processes, reverse logistics was not the focus of our
framework. The literature on how return processes relate to supply and product
characteristics is sparse. Our framework represents a starting point for how managers
can begin to think about integrating supply chain strategy with product characteristics
and reverse logistics processes. We suggest that BTS and ATO supply chains should
primarily focus on efficient return processes, whereas MTO and DTO supply chains
should primarily focus on flexible return processes. This view concurs with Blackburn et
al. (2004) who recommend that an efficient return process using a centralized processing
facility is appropriate for time insensitive products, whereas a responsive return process
using decentralized processing is more appropriate for time sensitive products.
The GSCF framework is broader than the SCOR framework and identifies eight
supply chain management processes that encompass all of the key processes within a
company’s operations (see Figure 8 for a list of the eight processes and how they relate
with our framework). Croxton et al. (2001) describe these supply chain processes in
detail and connect the strategic activities of each of these processes with their
respective operational activities. In addition, the demand management, the returns
management, and the order fulfilment processes are individually examined by Croxton
et al. (2002), Rogers et al. (2002), Croxton (2003), respectively. These efforts focus on
documenting the activities of key supply chain processes and highlighting how these
activities relate with the strategic planning process, but do not discuss (as we do in our
Figure 7.
Aligning products,
manufacturing, and
logistics processes within
the SCOR framework
IJLM
21,1
146
Figure 8.
Aligning products,
manufacturing, and
logistics processes within
the GSCF framework
framework) what strategy or what type of supply chain processes would be more
appropriate for different types of products.
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version 8.0.
Corresponding author
Euthemia Stavrulaki can be contacted at: estavrulaki@bentley.edu