Dr.

Leonidas Baziotopoulos
17-11-04

AGILE SUPPLY CHAIN MANAGEMENT

Author:

Dr. Leonidas Baziotopoulos (BA. MBA, PhD)

Introduction

Successful supply chain management requires cross-functional integration and marketing

must play a crucial role. The challenge within the supply chain is to determine how to
successfully accomplish this integration. Business management has entered the era of
inter-network competition (Lambert and Cooper, 2000). Instead of brand versus brand or
store versus store, it is now suppliers-brand-store versus suppliers-brand-store, or supply
chain versus supply chain. In this emerging competitive environment, the success of the
single business will depend on management’s ability to integrate the company’s network
of business relationships (Bhattacharya, 1996). Supply chain management offers the
opportunity to capture the synergy of intra-and inter-company integration and
management .
With the advent of business-to-business (B2B) electronic commerce and increasingly
complex and dynamic competitive markets, companies are exploring alternative long-
term relationships with their suppliers in order to improve supply chain agility. The
relationship between value creation and inter-organizational relationships has been
explored in transaction cost economics (Williamson, 1985), resource-dependence theory
(Handfield, 1993), marketing channel theory (Achrol, 1997; Dobler et al., 1990; Johnson,
1999), and relationship governance (Dyer and Singh, 1998; Monczka et al., 1999).
Companies as wide as raw materials suppliers, manufacturers and retailers may need to
be involved in the process of achieving an agile supply chain (Hoek, et al., 2001). Firms
operating in an international environment face a host of uncertainties that make it difficult
to meet deadlines reliably. To be reliable in an uncertain and changing environment,
companies must be able to quickly respond to several changes. The ability to do this in a
useful time is called agility (Prater, et al., 2001). Unfortunately, measures taken to
increase agility often lead to increases in complexity and uncertainty, which works
against agility. Turbulent and volatile markets are rapidly being increased, as life cycles
shorten and global economic and competitive forces create additional uncertainty
(Christopher, 2000).
Moreover, changing customer and technological requirements force manufacturers to
develop agile supply chain capabilities in order to be competitive (Hoek et al., 2001).
Therefore, several firms are stressing flexibility and agility in order to respond, real time,
to the unique needs of customers and markets. It is therefore imperative for companies to
co-operate and leverage complementary competencies, because resource competencies
are often difficult to mobilize and retain by single companies ( Yusuf et al., 2003). Hence,

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legally separate and spatially distributed companies are becoming integrated through
Internet-based technologies.
Businesses and institutions through the Internet now share common databases and
collaborate ever than before (US Internet Council, 2000). Therefore, companies submit
joint bids for contracts and attribute responsibilities for design and manufacture of
complex products, based on their relative competencies (Upton and McAfee, 1996). The
drivers of supply chain integration include advances in information technology, complex
customer requirements, intense global competition, and the desire to be the first to market
with innovative products (Yusuf et al., 2004).
Furthermore, the significance of time as a competitive weapon has been recognized for
some time (Stalk, 1988). The ability to be able to meet customer demands for ever-
shorter delivery times, and to ensure that supply can be synchronized to extended demand
is very crucial in the era of time-based competition (Stalk, 1990). To become more
responsive to the needs of the market requires more than speed. It also requires a high
level of maneuverability that today has come to be termed agility (Christopher, 2000).

An overview of supplier-buyer relationships

At the beginning of the 20th century, inter-organizational transactions were the domain of
marketing and distribution personnel (Handfield and Bechtel, 2002). Because material
specifications were much more standard, cost was the primary factor in transaction
decisions. Inter-organizational alliances or partnerships between buyers and sellers were
not present among early 20th century companies (Fearon, 1989). Instead, vertical
integration was usually used to eliminate supply uncertainty in the supply chain. The first
truly “long-term” inter-organizational relationships evolved in Japan, which established
the new type of integration known as “keiretsu”, characterized by informal but strict
cooperation among members (Ouchi, 1980; Prescutti, 1992). Early studies of interactions
among supply chain participants in the keiretsu noted that cycle times were lower than
those for American counterparts (Nishiguchi, 1994). Since then, a series of shocks to the
global economy have driven North American managers to consider alternative forms of
relational governance. These shocks included: 1) The globalization of the world
economy, 2) the evolution of the World Wide Web and new forms of B2B e-commerce
solutions, and 3) increasing requirements for customer responsivess (Handfield and
Bechtel, 2002).

Trends towards supply chain networks

Early 1990s companies began to identify their business environment from the supply
chain perspective and to build effective supply chains that operate according to the best
supply chain management (SCM) practices (Houlihan, 1987; Stevens, 1989; Davis,
1993). Also, operations were typically analyzed and problems were identified from the
viewpoint of material flow efficiency (McMullan, 1996). Although, supply chain
collaboration extended only to the closest partners, and in many cases second-, third,- and
nth-tier suppliers and customers were not even identified. Information was collected from
the customer side but was not shared to upstream (Kemppainen and Vepsalainen, 2003).

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A major trend in the emerging supply chains appeared to be that each company focused
on their first-tier suppliers and customers. Today supply chain collaboration extends
better beyond first-tier suppliers and customers (Meja and Wisner, 2001). Organizations
are more aware of the complexity and the increasing uncertainty of business operations,
and inter-firm relationships are no longer tailored and fit into simplified supply chain
illustrations despite of the continuous attempt to reduce the number of suppliers (Yusuf et
al., 2004; Christopher, 2000; Prater et al., 2001). As Bensaou (1999) describes, good
practice is to manage effectively portfolios of buyer-supplier relationships adapted to
product and market conditions. Industrial companies are also learning to listen to
customer needs, and both standardization and modularization are implemented to enable
cost-efficient mass customization (Kemppainen and Vepsalainen, 2003). Fawcett and
Magnan (2002) state that chain-wide transparency has not realized and only few firms
completely understand their supply chains even though more and more are working to
make processes and relationships transparent and workable.
Furthermore, the view of the future reveals the expected impact of SCM- Anderson and
Delattre (2002) assign to SCM the best part of service revolution; Monczka and Morgan
(2002) address the growing specialization and interdependence as the major trend at the
beginning of the 21st century; and Bowersox et al. (2000) outline the emerging
foundations of business relationships and promoting value management. Kemppainen and
Vepsalainen (2003) address the following significant issues:

• Collaboration will be the most strategic capability in the extended supply chains
• Service and support will become as important as the product itself
• Organizations will improve their service capabilities to adapt in turbulent
environment
• Assets and functions not at the core of value delivery are to be divested.

Acknowledging the current operating modes of industrial companies the trends outlined
above cannot be considered radical, because a majority of those are being implemented.
For example, component suppliers are transforming into module suppliers, providing not
only a narrow manufacturing expertise but a holistic service solution, and product
manufacturers not only selling the product but services such as financing, maintenance,
and replenishment (Wise and Baumgartner, 1999). Also, information sharing and
collaboration are praised everywhere as the new dominant operating mode.
Consequently, the importance of focusing on core competencies is resulting in the
increasing outsourcing of operations which the major issue within the SCM. How then,
will ongoing outsourcing and specialization affect the supply chain structure and
practices? The problem expected first was potential loss of control (Kemppainen and
Vepsalainen, 2003).The term “hollow corporation” was coined early on (Jonas, 1986) to
remind of the risks of losing both assets and talents as an outcome of outsourcing of
manufacturing operations and coordinating product flows to markets. Although, the
slump of the economy taught the virtues of coordination soon enough, and new business
models were justified using innovative coordination mechanisms (e.g. Lambert and
Cooper, 2000; Christopher, 2000; Yusuf et al., 2004). In addition to data sharing enabled

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by the Internet, the new models address the role of routines and incentives in the supply
chain.

Drivers of Supply Chain Integration

Today, where turbulent and volatile environment exist, there are pressures on companies
to improve their operational efficiency for enhanced competitiveness and overall business
performance. Such pressures include competition from foreign products, new product
introduction by competitors, falling product life cycles, unpredictable customer shifts,
and advances in manufacturing and information technology (Browne et al., 1995). Other
pressures include the privatization of public enterprises, economic downturns and
agitation by shareholders for higher returns on investment (ROI).
Moreover, the most difficult challenge facing manufacturers today is how to integrate the
upstream outsourcing functions and the downstream delivery functions with product
design and manufacture ( Helena, 1997). Integration would enable the value creation and
transfer process, from the supplier to the end customer to operate as a seamless chain
along which information, knowledge, equipment and physical assets flow as if water
(Gunasekaran and Yusuf, 2002; Yusuf et al., 1999). Seamless flow of physical and non-
physical assets amongst firms would lead to enabling synergy and optimization of
tangible and intangible assets that are potentially available to the individual firms
(Kasarda and Rondinelli, 1998; Upton and McAfee, 1996).
However, advanced information technology (IT) is a major driver of supply chain
integration. Through the Internet, a single data file can be accessed simultaneously by
spatially distributed entities ( Yusuf et al., 2004). As well, companies’ growth vertical
integration and search for new markets in different countries has given rise to large
administrative structures. Hence, the need to process and transfer large volumes of data in
the form of designs, plans, budgets, and reports across several administrative and
operation units becomes even more necessary (Yusuf et al., 2004). In addition,
companies allying to become integrated global businesses needed mutual access to data
on cost, personnel, stocks, sales and profit profiles. This is in addition to being able to
monitor several alliance conditions such as compliance, contribution and attribution. This
business scenario necessitate advanced IT applications, with greater functionality than
electronic data interchange (EDI) (Christopher, 2000).
Nevertheless, market turbulence arising from factors such as rapid introduction and
customization of products, difficult design specification and customer shifts make
continuous contact with customers and suppliers through supply chain integration most
important (Russ and Camp, 1997; Davenport, 1998). Also, as competition intensified,
efforts to reduce cost through just-in-time (JIT) purchasing, scheduling and distribution,
led to more frequent monitoring of specified and delivered quality, schedules and other
customer expectations as a routine process (Yusuf et al., 2004). The process of conception
design, manufacture and delivery are therefore becoming a relay race between legally
separate firms, who work with equal vigour and commitment to add the greatest value to
end customer continually (Badaracco, 1991; Lee and Lau, 1999; Soliman and Youssef,
2001). In this regard, sharing of design and manufacturing knowledge between
companies who work and operate in the same supply chain is a vital tool of competition.

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The notion of Agility

According to Christopher (2000) agility is a business-wide capability that embraces

organizational structures, information systems, logistics processes, and, in particular,
mindsets. A key feature of an agile organization is flexibility. Indeed, the origins of agility
as a business concept lies in flexible manufacturing systems (FMS). Available literature
on agility has provided conceptual overviews (Gunasekaran, 1999; Sharifi and Zhang,
1999; Yusuf et al., 1999; Sharp et al., 1999; Naylor et al., 1999; Anderson and Pine, 1997;
Youssef, 1991).
However, agility should not be confused with leanness (Christopher, 2000). According to
Christopher, lean is about going more with less. The term is often used in connection with
lean manufacturing to imply a “zero inventory” just-in-time (JIT) approach (Womack et
al., 1990). While leanness may be an element of agility in certain circumstances, by itself
it will not enable the company to meet the precise needs of te customer more rapidly
(Christopher, 2000). There are certain conditions where a lean approach makes sense, in
particular where demand is predictable for variety is low and volume is high (e.g.
Japanese industry-Toyota). Although, the requirement for variety is high and,
consequently, volume at the individual stock keeping unit (SKU) level is low (e.g.
Western industry).
According to Christopher (2000), agility can be defined as the ability of a company to
respond rapidly to changes in demand, both in terms of volume and variety. The market
conditions in which many companies find themselves are characterized by volatile and
unpredictable demand; hence, the increased urgency of the search of agility (Fig. 1).

Figure 1: Agile or Lean (Christopher, 2000).

HIGH AGILE
(Agility is needed in less
predictable environments
Variety/ where demand is volatile and the
Variability requirement for variety is high)

LEAN (works best in high

volume, low variety and
predictable environments)
LOW

LOW HIGH

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The operating environment of agility

Customer responsiveness is key to success in today’s markets. Agility is all about creating
that responsiveness and mastering the uncertainty (Hoek et al., 2001; Handfield and
Bechtel, 2002). The agile mindset questions such stability, instead of locking up the
manufacturing game plan for such long periods, why not loosen it up? This does not
mean a return to the production chaos which characterized so many traditional
engineering companies: it will actually depend on using new learning and capabilities
(Hoek et al., 2001).
The relevance of agility depends on the operating environments of the supply chain in
which a company operates. Fisher (1997) suggests two specific operating environments.
Functional products with predictable demand benefit most from “physically efficient”
supply chain operating structures; innovative products demand “market responsive”
supply chain processes that are focused on speed and flexibility rather than on cost. Also,
Figure 2 shows Fisher’s supply chain matrix: efficiency has been defined in “lean” terms
of productivity and quality. A different approach to production scheduling called accurate
response (Fisher et al., 1994) is proposed to distinguish stable demand items from
unpredictable items.
In addition (Figure 3) to the two dimensions used by Fisher, in this comparative
positioning of operating environments a further dimension has been introduced, that of
“economic trade-offs”. Economic trade-offs based on physical assets, labor, capital and
land are most relevant in the functional, lean, environment that is focused on eliminating
waste in operational processes (Fisher, 1997). Trade-offs, also, based on time,
information and knowledge are more relevant in the innovative agile environment.

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Figure 2 & 3: Fisher’s supply chain matrix.

Efficiency focus Match Mismatch

Responsiveness Mismatch Match

focus

Efficiency focus
Physical trade-offs

Responsiveness Knowledge trade-offs

Focus

Agile Supply Chain Framework

Having insights from existing literature, Figure 4, shoes what might represent the
dimensions of agility in the supply chain (Hoek et al., 2001). According to Hoek et al.,
(2001), customer sensitivity includes market understanding and customer “enrichment”,
but also includes initiatives such as customization, postponement and rapid response. It
also means that collaborative initiatives should be driven by quick response to customer
requirements (Yusuf et al., 2004). Virtual integration relates to leveraging information,
but now has a focus on the wider supply chain. It also envisages access to information,
knowledge and competencies of companies through Internet.

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Also, process integration relates to mastering change and uncertainty internally, but now,
through managing the supply chain as a whole, to mastering change across organizations.
Network integration relates to cooperating to compete, and the broader critical issue of
supply chain governance. It requires that companies in the chain have a common identity,
which can range from commitment to agile practices, compatibility of structure,
information architecture and tradable competencies.
Measurement is added as a separate element, given the focus on measuring agility in the
supply chain as well as its all-round relevance for the specific dimensions.

Figure 4: Elements of an agile supply chain (Hoek, Harrison and Christopher, 2001).

Customer
sensitivity
measurement

Agile supply Virtual

Network chain integration
integration

Process
integration

The aim of the integration

The aim of integration is to ensure commitment to cost and quality, as well as achieving
minimum distortion to plans, schedules and regular delivery of small volumes of orders
(Yusuf et al., 2004). Supply chain agility can be discussed in terms of three inter-
dependent dimensions of supply chain maturity (Venkatraman and Henderson, 1998). The
three dimensions are shown in Figure 5 as customer interaction, asset configuration and
knowledge leverage. The challenge of an agile supply chain will be to improve and
ensure balance across the three dimensions.
According to Venkatraman and Henderson (1998) model (Figure 5), on customer
interaction, the first stage of remote experience of products includes attempts to reach out

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to customers through sales catalogues, television demonstrations etc. By remotely

reaching out to spatially distributed customers through virtual teams, a company can
identify clusters of unique preferences for dynamic customization (stage 2). Also,
dynamic customization can be targeted at communities of customers (stage 3), who have
strong commitment to customer-specified product upgrades rather than variety as an end
in itself.
As for customer interaction, the asset configuration dimension matures from emphasis on
commercial outsourcing of materials and components, to business process inter-
dependence. This means delegating critical business processes to members of a supply
chain. Eventually spatially distributed business processes mature into resource coalitions.
At this stage, firms will contribute and share knowledge and competence within global
networks of resources, and focus on limited areas of the value creation processes where
comparative advantage is higher. On the third dimension of knowledge leverage, supply
chain agility requires advance from emphasis on individual job competencies and
structures, to teaming and free flow of knowledge across work units. Also, a company
aims to leverage competencies not only internally amongst its own employees and teams,
but also within a globally linked professional community of experts. Across the three
stages, performance objectives would mature from operating efficiency through
economic value added, to enhanced survival prospects (Venkatraman and Henderson,
1998).
Figure 5: Three dimensions and stages of supply chain maturity (Venkatraman and
Henderson, 1998).

Dimensions of
supply chain STAGE 1 STAGE 2 STAGE 3
agility

Remote Dynamic Customer

Customer experience of customization communities
interaction products

Asset Resource
configuration Outsourcing Process coalitions
interdependence

Knowledge Work unit

leverage experrtise Corporate asset Professional
experts community

Why agility is so important then ?

Leveraging supplier relations is one of the keys to achieving agile response to fast-
changing markets which lies upsertream of the company in the quality of supplier
relationships (Christopher, 2000). Today, many companies have not realized the
competitive advantage that can be obtained from closer relationships with key suppliers
(Hines, 1994). To really leverage the ability for greater agility through closer supplier
relationships requires several important factors.

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According to Christopher (2000) one factor is that it is inevitable that the supplier base be
rationalized. It is not possible to create close relationships through process integration
with multiple suppliers. Agile companies have realized the need to identify a small
number of “strategic” suppliers with whom they can work as partners through linked
systems and processes. Opportunities for establishing information-based, paperless
systems utilizing concepts of vendor-managed inventory (VMI), for instance, are greater
whtn both buyer and supplier look each other as vital links.
Another factor for the creation of a more agile supplier base is a high level of shared
information. Particularly, there has to be clear visibility of downstream demand; data on
real demand needs to be captured as far down the chain as possible and shared with
upstream suppliers as well as the information systems technology to make the transfer of
information possible (Christopher, 2000). Also, there needs to be a willingness between
the partners to put aside any past mistrust and to create a clean trustable environment in
which information can easily flow in both sides is very vital.
According to Christopher (2000), the most important factor is the need for a high level of
“connectivity” between the company and its suppliers. That means not just the exchange
of information on demand and inventory, but multiple, collaborative working
relationships across the organizations at all levels (Kalafatis, 2000). It is very important
today in volatile and turbulent environments for companies to establish supplier
development teams that are cross-functional (Lewis, 1995). However, in today’s more
challenging business environment, where volatility and unpredictable demandhave
become the norm, it is crucial tha the importance of agility be more effeciently
recognized. Figure 6 shows tha concept of supplier and customer partnership.

Figure 6: Building stronger partnerships through multiple linkages (Christopher, 2000).

R&D Marketing

Production Operations

Marketing Business

Development

Customer Information Information

Management systems systems Customer
management

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A proposed agile supply chain framework

The understanding of supply chain management has been re-conceptualized from

integrating logistics across the supply chain to the current understanding of integrating
and managing key business processes across the supply chain (Cooper and Lambert,
1997). Logistics, as defined by the Council of Logistics Management (1986)1 always
represented a supply chain oreintation “from point of origin to point of consumption”.
Then why is so confusing? As Lambert and Cooper (2000) state it is probably due to he
fact that logistics is a functional silo within the management of material and information
flows across the supply chain.
Moreover, there is a degree of complexity required to manage all suppliers back to the
point of origin and all products services out to the point of consumption. Lambert and
Cooper (2000) state that it is probably easier to understand why executives want to
manage their supply chains to the point of consumption, because whoever has the
relationship with the end user has the power in the supply chain.
In the past years, marketing channel researchers such as Wroe Alderson (1950) and Louis
Bucklin (1966) conceptualized the key factors for why and how channels are created and
structured. Although, for the last 25 years many channels researchers ignored two critical
issues (Lambert and Cooper, 2000). First, they did not build on the early contributions by
including suppliers to the manufacturer and thus neglected the significance of an overall
supply chain perspective. Second, they focused on marketing activities and flows across
the channel and overlooked the need to integrate and manage multiple key processes
within and across companies.
Despite the marketing channels literature, a profound weakness of the SCM literature is
that the authors appear to assume that everyone knows who is a member of the supply
and what are its responsibilities. However, many companies within a supply chain did not
pay particular attention on who trully are their strategic partners and what precisely they
could be able to deliver. There has been little effort to identify specific supply chain
members, key processes that require integration or what management must do to
successfully manage the supply chain.
Therefore, the author proposes a more comprehensive framework towards an integrative
supply chain (based on the framework of Hoek et al.,) with key characteristic the
particular issue of agility (as discussed above). Also, the author has examined several key
frameworks from the existing literature (each of these frameworks has been separately
identified, described and drawned by the researchers), before making his final decision
to the proposed framework (Figure 7) (e.g. Lambert and Cooper, 2000; Christopher,
2000; Hoek et al., 2001; Prater et al., 2001).
1
Logistics is the process of planning, implementing, and controlling the efficient, cost-effective flow and
storage of raw materials, in-process inventory, finished goods, and related information flow from point-of-
origin to point-of-consumption for the purpose of conforming to customer requirements (Council of
Logistics Management, Oak Book, Illinois, 1986).

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Figure 7: Four-Square circulation model (F-S)

Supply Chain
Business
Process
Measurement -external Integration Measurement- external
Environment internal internal environment
Environment Environment

Supply Chain Supply Chain

Behavioral network
Vulnerability AGILE SUPPLY structure
Limitation (BVL) CHAIN integration

Internal internal
Measurement environment environment Measurement
external environment external environment

Supply Chain
Management
Components
Integration

The conceptual framework emphasizes the interrelated nature of SCM and the need to go
through several key step stages to design and successfully manage an effective agile
supply chain. The SCM framework consists of four closely linked interrelated elements:
1) the supply chain network structure integration, 2) the supply chain business processes
integration, 3) the supply chain management components integration, and 4) the supply
chain behavioral vulnerability limitation (BVL).
In general terms, the supply chain network structure consists of the member companies
and the links amongst these companies. Business processes are the activities that generate
a particular output of value to the customer. The management components are the
managerial variables by which the business processes are integrated and managed across
the supply chain. The behavioral vulnerability limitation is the process that companies
attempt to implement practices in order to eliminate uncertainty and complexity, and thus
to increase flexibility into the supply chain (internally and/or externally).

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1) Supply Chain Network integration

Nowadays, all companies are being involved in a supply chain, from the raw materials to
the ultimate customer. How much of this supply chain needs to be managed depends on
various key elements including the complexity of the product, the number of available
suppliers, and the availability of raw materials (Lambert and Cooper, 2000). For most
manufacturers, the supply chain seems like an uprooted tree, where the branches and
roots are the extensive network of customers and suppliers (Cooper et al., 1997). The
point is how many of these branches and roots need to be characteristically and
effectively managed.
The relationship between buyers and suppliers in the supply chain differ. Management
will need to choose the level of partnership and contracts of particular supply chain links
(Lambert et al., 1996). However, not all links throughout the supply chain are closely
coordinated and integrated. The most appropriate relationship is the one that best fits the
particular set of circumstances (Cooper and Gardner, 1993).
Moreover, is crucial companies to have a strong knowledge and understanding of how the
supply chain network structure is configured (Lambert and Cooper, 2000). The three
primary aspects of a company’s network structure are : a) the members of the supply
chain, b) the structural linkages of the network, and c) the different types of process links
across the supply chain.

a) Identifying supply chain members: Including all types of members may cause the
overall supply chain network to be more complex (Cooper et al., 1997). To integrate and
manage all process links with all members across the supply chain would be counter-
productive, if not impossible. The key point is to identify some basis for distinguishing
which members are strategically critical to the success of the firm and the supply chain,
and, thus, should be given managerial importance.
Marketing channels researchers identified members of the channel based on who partakes
in the various marketing flows including product, payment, title, information and
promotion flows (Stern, 1995). The members of a supply chain, also, include all firms
with whom the focal company communicates directly or indirectly through its customers
or suppliers, from point of origin to point of consumption (Lambert and Cooper, 2000).
Although, to make a very complex network more workable and manageable, it is
important to distinguish primary and secondary members. Primary members of a supply
chain are all those strategic business units who deliver value-adding activities
(operational and/or managerial) in the business processes to generate a particular
outcome for a particular customer or market (Lambert and Cooper, 2000). Secondary
members are companies that provide resources, knowledge or assets for the primary
members of the supply chain (e.g. banks lending money to a customer, an owner of
vehicles that provide them for hire purposes, shipping owner companies that provide

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ships for hire etc.). Also, the point of origin of the supply chain occurs where no previous
primary suppliers exist. All suppliers to the point of origin members are solely secondary
members. The point of consumption is where no further value is added, and the
product/or service is consumed (Lambert and Cooper, 2000).

b) Linkages of the network

b1): A more comprehensive conceptualization of a supply chain integration may include

three critical dimensions that strengthen linkages between companies occupying different
positions in the supply chain (Vickety et al., 2003). The vertical linkages and practices
foster horizontal linkages between the various functional areas within the company, and
the horizontal position of the focal company within the end points of the supply chain.
The vertical dimension refers to the number of suppliers/customers represented with
each tier and include two major categories for first tier suppliers (Lambert and Cooper,
2000). The first category is amongst tier suppliers and their suppliers, who are second tier
in the overall supply chain hierarchy. The second is amongst first tier suppliers and their
customers, who are the original equipment manufacturers (OEM). Two major here
practices are supplier partnering and closer customer relationships (Vickery et al., 2003).
Supplier partnering threats the supplier as a strategic collaborator. A partnership amongst
a buying and supplying company is a mutual relationship that involves a great level of
trust, commitment over time, long-term contracts, joint conflict resolution, and the
sharing of information, risks and rewards (Ellram, 1990; Heide and John, 1990; Kern and
Willcocks, 2000; Spekman et al., 1998; Cox, 1999). Hence, supplier partnership may
enable companies to achieve a competitive stature and might entail early supplier
involvement in product design or access to superior supplier technological capabilities
(Narasimhan and Das, 1999).
In addition, closer customer relationships can be viewed as a downstream counterpart to
supplier partnering initiatives (Vickery et al., 2003). Closer customer relationships
depend on a company’s strategic ability to distinguish its customers’ requirements and the
degree of its commitment to meet those requirements (Powell, 1995). It also enables
companies to proactively seek information on customer demands and needs and then
become more responsive.
On the other hand, horizontal linkages refers to the number of tiers across the supply
chain, and the most cited practice in the literature is the use of cross-functional teams
(Bishop, 1999; Guzzo and Dickson, 1996; Cohen and Bailey, 1997; Henke et al, 1993;
Parker, 1994). The supply chain may be long, with various tiers, or short, with few tiers
(Vickery et al., 2003). The objective of cross-functional teams is collaboration-the
forging of linkages among people and departments (who may have competing interests)
to reach win-win results (Jassawalla and Sashittal, 1999). Cross-functional teams are
typically employed to achieve the integration needed across internal functions to ensure
the quality or innovation objectives are realized (Hitt et al., 1999; Clark and
Wheelwright, 1992).
Finally, the company’s horizontal position within the supply chain is positioned at or near
the initial source of supply, be at or near to the ultimate customer, or somewhere between
these end points of the supply chain (Vickery et al., 2003; Lambert and Cooper, 2000).

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In summary, the effects of marketing/logistics collaborative integration on logistics

performance to competitors highlights the significance of cross-functional teams for
internal integration (Stank et al., 1999). For an integrative supply chain both intra-firm
and inter-firm integration is vital, since the internal functions comprising a firm are as
much a part of the supply chain as are the external members.

b2) Integrative information technologies:

Integrative information technologies increase the flow of relevant information amongst

process participants to facilitate the integration of processes that transcend functional and
firm boundaries (Vickery et al., 2003). For first tier suppliers in the automotive industry,
key information technologies are: 1) computerized production systems; 2) integrated
information systems; and 3) integrated electronic data interchange (EDI). Sheombar
(1992), Walton and Marucheck (1998), Narasimhan and Carter (1998), Bowersox and
Daugherty (1995), Lewis and Talayevsky (1997), and Van Hoek et al., (1998) support the
inclusion of these technologies in defining a macro-level IT construct.
More specifically, computerized production systems serve to integrate manufacturing
activities into an overall planning system that stretches beyond the boundaries of the
manufacturing unit (Hammel and Kopczak, 1993). Also, integrated information systems
enable all functional areas within the company to access and transmit information from
one area to another engendering horizontal or cross-functional integration within a firm.
EDI systems integrate electronic documents into business systems with no manual
intervention, providing a system for sharing information among related companies and
facilitates the ease, accurate and speed of routine interactions (Mukhopadhyay et al.,
1995). By enabling supply chain members to interact effectively, integrated EDI
facilitates vertical integration, both upstream and downstream (Vickery et al., 2003).

2) Supply chain business process integration

a) Supply Chain Business Processes:

Successful SCM requires a change from managing individual functions to integrating

activities into key supply chain processes. The purchasing department placed orders as
requirements became appropriate and marketing, responding to customer demand,
interfaced with several distributors and retailers and attempted to satisfy this demand.
Shared information between supply chain partners can only be fully leveraged through
process integration (Christopher, 2000). Process integration means collaborative working
between buyers and suppliers, joint product development, common systems and shared
information. According to Lambert and Cooper (2000), operating an integrated supply
chain requires continuous information flows, which in turn assist to achieve the best
product flows.
However, in many companies, such as 3M, management has reached the conclusion that
optimizing the product flows cannot be accomplished without implementing a process
approach to the business. The key supply chain processes stated by Lambert and Cooper
(2000) are:
- customer relationship management

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- customer service management

- demand management
- order fulfillment
- manufacturing flow management
- procurement
- product development and commercialization
- returns

Customer relationship management: The initial step toward integrated SCM is to justify
key customers or customer groups, which the company aims as critical. Customer service
teams work with customers to further identify and eliminate sources of demand
variability (Lambert and Cooper, 2000; Handfield and Bechtel, 2001). Performance
evaluations are undertaken to analyze the levels of service provided to customers
(Vickery et al., 2003). Also, supplier investment in human and site-specific assets,
however, are increasingly becoming requirements for suppliers who wish to conduct
business in global supply chains (Handfield and Krause, 1999; Handfield and Nichols,
2002). Dedicated customer investments represent a requirement that buying company
managers may choose to apply as a means to structure a supplier relationship. These
supplier investments may include people with special skills or highly specialized
machines that are specific to a particular customer.

Customer service management process: Customer service provides the source of

customer information. It also provides the customer with real-time information on
promising dates and product availability through interfaces with the company’s
production and distribution operations (Lambert and Cooper, 2000; Kern and Willcocks,
2000; Lewis and Talalayevsky, 2004).

Demand management process: Essential inventory includes work-in-process in factories

and products in the pipeline transferring from area to area. Customer demand is by far the
largest source of variability and it stems from irregular order patterns (Lambert and
Cooper, 2000; Yusuf et al., 2003). A good demand management system uses point-of-
scale and key customer data to reduce uncertainty and provide efficient flows across the
supply chain (Davis, 1993; Yusuf et al., 2003; Vickety et al., 2003; Christopher, 2000;
Prater et al., 2001).

Customer order fulfillment process: The key to effective SCM is meeting customer need
dates (Lambert and Cooper, 2000). Performing the order fulfillment process requires
integration of the company’s manufacturing, distribution, and transportation plans.
Alliances, also, should be created with key supply chain members and carriers to meet
customer demands and eliminate overall delivered cost to the customer.

Manufacturing flow management process: The manufacturing process is produced and

supplied products to the distribution channels based on past forecasts. Manufacturing
processes must be flexible to respond to market changes, and must accommodate mass
customization (Lambert and Cooper, 2000). Orders are processes on a just-in-time (JIT)

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basis in minimum lot sizes (Christopher, 2000; Prater et al., 2001; Kalafatis, 2000; Yusuf
et al., 2003). Also, changes in the manufacturing flow process lead to shorter cycle times,
meaning improved responsiveness and efficiency of demand to customers (Handfield and
Bechtel, 2001)..

Procurement process: Strategic plans are developed with suppliers to support the
manufacturing flow management process and development of new products. In firms
where operations extend globally, sourcing should be managed on a global basis (Prater
et al., 2001; Bozarth et al., 1998; Yourdon, 1998). The desired outcome is a win-win
relationship, where both parties benefit, and reduction times in the design cycle and
product development is achieved. Also, the purchasing function develops rapid
communication systems, such as electronic data interchange (EDI) and Internet linkages
to faster transfer possible requirements (Vickery et al., 2003).

Product development and commercialization: Here, customers and suppliers must be

united into the product development process, thus to reduce time to market. As product
life cycles shorten, the appropriate products must be developed and successfully launched
in ever shorter time-schedules to remain competitive (Lambert and Cooper, 2000; Kern
and Willcocks, 2000; Lynch, 2003; Porter, 1985). According to Lambert and Cooper,
managers of the product development and commercialization process must: a) coordinate
with customer relationship management to identify customer-articulated needs; b) select
materials and suppliers in conjunction with procurement, and c) develop production
technology in manufacturing flow to manufacture and integrate into the best supply chain
flow for the product/market combination (Gunasekaran and Ngai, 2004; Romano, 2003;
Lewis and Talalayevski, 2004).

3) Supply Chain Management Components Integration

The management components of SCM:

The SCM management components are the third element of the four-square circulation
framework. The level of integration and management of a business process link is a
function of the number and level, ranging from low to high, of components added to the
link (Ellram and Cooper, 1990; Houlihan, 1985). Consequently, adding more
management components or increasing the level of each component can increase the level
of integration of the business process link.
The literature on business process reengineering (Macneil ,1975; Williamson, 1974;
Hewitt, 1994), buyer-supplier relationships (Stevens, 1989; Ellram and Cooper, 1993;
Ellram and Cooper, 1990; Houlihan, 1985), and SCM (Cooper et al., 1997; Lambert et
al., 1996; Turnbull, 1990) suggests various possible components that must receive
managerial attention when managing supply relationships. Lambert and Cooper (2000)
identified the following components which are:

- planning and control

- work structure
- organization structure
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- product flow facility structure

- information flow facility structure
- management methods
- power and leadership structure
- risk and reward structure
- culture and atttude

Planning and control: of operations are important aspects to moving a company or supply
chain in a desired direction. Different components may be highlighted at different times
during the life of the supply chain, but planning transcends the phases (Ellram and
Cooper, 1993). The control aspects can be operationalized as the best performance
metrics for measuring supply chain success (Spekman et al., 1998). Planning and control
might include key aspects such as demand planning; capacity planning; virtual batching;
enterprise resource planning (Browne et al., 1995; Kehoe and Boughton, 2001). Also,
collaboration (Anderson and Narus, 1990; Bhote, 1987; Ellram, 1990) has become a
popular topic as an integral facet of supply chain management sourcing strategies.
Collaborative behavior engages partners in joint planning and processes beyond levels
reached in less intense trading relationships. It suggests that the procurement function can
transcend its traditional role of contributing to “cost leadership” and can support other
revenue-enhancing strategic initiatives (Spekman et al., 1998).

Work structure: shows how the company performs its tasks and activities. The level of
integration of processes across the supply chain is a measure of organizational structure
(Prater et al., 2001).

Organizational structure: can refer to the individual company and the supply chain. The
use of cross-functional teams would suggest more a process approach (Yusuf et al., 2004,
Christopher, 2000). When these teams cross organizational boundaries, such as in-plant
supplier personnel, the supply chain should be more integrated. Also, this aspect refers to
the type of relationship between buyers and suppliers (e.g. partnership). Concrete
examples are just-in-time (JIT) concepts to the purchasing function by having a
representative of the supplier located at the buying company’s facility (Stock and
Lambert, 2001), specific account managers dedicated planners for one buyer, and the
creation of quasi-firms (Lamming, 1993).

Product flow facility structure: refers to the network structure for sourcing,
manufacturing, and distributing across the supply chain (Yusuf et al., Andersen and
Buvik, 2000; Lambert and Cooper, 2000). Since inventory is necessary in the system,
some supply chain members may keep a dis-proportionate amount of inventory.

Information flow facility structure: Integrative practices with respect to information and
communication technology (ICT). Examples are EDI and bar coding (Vickery et al.,
2003). Also, the kind of information passed among channel members and the frequency
on information updating has a great influence on the efficiency of the supply chain.

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Management methods: include the company’s philosophy and management techniques

(Porter, 1985; Lynch, 2003; De Wit and Meyer, 2001). It is very difficult to integrate a
top-down organization structure with a bottom-up structure. Many companies have
different management methods arising from traditional to modern ones (e.g. Marks &
Spencer, Easyjet, Beautyshop etc.).

Power and leadership structure: The lack of power can affect the level of commitment
among the supply chain members (Zineldin and Johnson, 2000). Trust and commitment
grow when two parties share a variety of experiences over time, thereby improving each
other’s ability to predict the other’s behavior (Doney and Cannon, 1997). It is imperative
for a successful relationship among supply chain members (partners) to communicate and
cooperate in an atmosphere of trust, debate, interdependence, and mutual positive
expectations so that mutual benefits and satisfaction may be achieved (Lewicki and
Bunker, 1995; Zineldin, 1998). Also, non-coercive bases of power increase the value of
the relationship through team support and common interests as well as promoting
collective goals (Skinner, 1992; Johnson and Zineldin, 2003).

Culture and attitude: are very important aspects within a supply chain. Compatibility of
corporate culture across channel members cannot be undervalued. Sometimes, meshing
cultures can be time consuming, as language and cultural differences often lead to serious
misunderstandings on a project between two or more supply chain members, and without
full commitment on the part of all client’s participants, it just won’t work (Yourdon,
1998).

4) Supply Chain Behavioral Vulnerability Limitation (BVL)

At this point, the author would like to distinguish and explain what behavioral
vulnerability limitation (BVL) really means. Also, he addresses this aspect of BVL by
separately explaining what behavioral stands for, and how vulnerability limitation is
regarded.

a) Vulnerability limitation

Despite the obvious benefits of agility, companies that operate in complex and volatile
environments, such as international markets, confront challenges in implementing the
measures necessary to increase their agility. These challenges stem from the expense
associated with the complex operations and management structures appropriate to
enhance the desire results. For instance, it may be difficult for a multinational operating
company that ships components by sea to serve niche markets with individualized goods
(Prater et al., 2001). In an international environment, the supply chain usually is the part
of a company that is most likely affected by several changes. The company’s
international supply chain performance frequently limits performance along many traits
often related with agility. For instance, it may be difficult to adjust the structure or
geographical establishment of a supply chain to respond to changes in the political
environment if the company has branches in more than one continent.

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As the issues and the dimensions regarding agility discussed earlier, which are
importantly related with speed and flexibility that enhances success within a supply
chain, therefore, a firm can to a certain extent make up deficiencies in the speed or
flexibility. For instance, the delivery part of the supply chain may be inherently
inflexible, such as is found in sea transportation (i.e. the speed is low) (Prater et al.,
2001). As the speed in outbound logistics is inflexible, speed and flexibility in
manufacturing and sourcing could help compensate for this slowness.
According to Prater et al., (2001), if a deficiency is serious to limit supply chain agility,
the company becomes vulnerable to competitors and customers. Two types of
vulnerability exist:

1) internal vulnerability; and

2) external vulnerability

Internal vulnerability is an outcome of a lack of internal supply chain agility (Houlihan,

1987; Forrester, 1962). That is, the manufacturing segment of the supply chain. External
vulnerability the result when inbound and outbound logistics part of the supply chain, as
it is a major element determining the extent of agility of companies operating in
international environment. Although, the extent of external vulnerability is affected by
two critical factors; the complexity of sourcing and delivery and uncertainty in demand or
forecasting (Kern and Willcocks, 2000; Andersen and Buvik, 2000; Yusuf et al., 2003;
Hoek et al., 2001).
In order to understand more the impact of demand or forecasting uncertainty, we can
consider the “bullwhip effect” (Lee et al., 1997). Firm A supplies components for final
assembly to the factory B. Factory B estimates demand considering on various factors,
such as past and current sales. Also, supplier A forecasts its demand based on factory B’s
orders. Although, there is an error in forecasted demand. The error is greater in supplier
A’s forecast than in factory B’s forecast. Additionally, the less precise B’s forecast is, the
more inaccurate is A’s forecast. So, the more parties are involved in the supply chain, the
greater the impact of forecasting errors.
Moreover, a typical response to uncertainty is to build flexibility into the supply chain,
and thus adjust a firm’s ability to quickly respond to supply chain changes. The potential
to increase flexibility, although, depends on environmental, organizational and technical
factors (Prater et al., 2001; Yusuf et al., 2003; Johnson and Zineldin, 2003; Spekman et
al., 1998; Andersen and Buvik, 2000; Handfield and Bechtel, 2002).
In addition, measures taken to increase flexibility, however, may be very expensive. Most
significant, if these measures also necessitate an increase in complexity of management,
coordination costs may increase (Levy, 1992; Forrester, 1962; Prater et al., 2001).
International supply chains are complex systems that are subject to large time-lags and
variability in delivery. Complexity may arise from physical distances. Long distances
often increase transportation and order lead and the order lead times and decrease the
reliability of demand forecasts (Stank, 1997; Ho, 1992). In fact, this increases the
uncertainty with respect to production schedules, orders to suppliers, and the likelihood
of meeting demand at the right time (Swenseth and Buffa, 1991).
Increasingly, large multinational companies in an effort to simultaneously provide loval
responsiveness and global integration, are developing complex differentiated network

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structures (Norhai and Ghoshal, 1997). Large manufacturing firms have even argued that
they are “hostage to complexity” with regard to the their supply chain structure (Davis,
1993). In other words, companies realize that they can not manage all eventualities,
particularly in an international environment. Instead, by focussing on the most important
and feasible aspects of an agile supply chain, they choose a realistic level of complexity
that reflects an adequate extent of supply chain agility (Wilding, 1998). This focus also
allows them to better deal with uncertainty of their international business logistics
environment.
As Prater et al., (2001), Christopher (2000), and Wilding (1998) suggests, the company
has the choice of:

a) dealing with the resulting uncertainty;

b) implementing costly coordination mechanisms (i.e. increasing flexibility);
c) limiting complexity by reengineering the supply chain;
d) development of a human resource strategy that leads to multi-skilling and encourages
cross-functional working.
e) Removing chaos by focusing on the customer; communication demand information as
far upstream as possible, using simple lean approaches.

From the existing literature, many researchers have addressed several key mechanisms of
dealing with complexity and uncertainty, and thus, increasing flexibility (Prater et al.,
2001; Johnson and Zineldin, 2003; Spekman et al., 1998; Kern and Willcocks, 2000;
Andersen and Buvik, 2000; Handfield and Bechtel, 2002; Yusuf et al., 2003; Hoek et al.,
2001; Vickery et al., 2003; Wilding, 1998; Nohrai and Ghoshal, 1997; Davis, 1993;
Christopher, 2000). Unfortunately, the literature does not give helpful advice on how to
deal with supply chain vulnerability. While some research deals with complexity issues
pertaining to general logistics, the results of that research are not always applicable to
planning an agile international supply chain.
However, as flexibility and complexity distinguish the external vulnerability of the
supply chain, they essentially limit the degree of agility a company can and should try to
achieve. Thus, as external vulnerability increases, supply chain agility should decrease to
limit complexity and uncertainty. Wilding (1998) refers to the relationship between
external vulnerability and supply chain agility as “supply chain exposure”. That means
the indication of the degree to which an agile supply chain is “overextended” and, hence,
should be restructured, improved, or adjusted in length.
According to Wilding (1998), the degree of supply chain exposure depends on a number
of factors, that a company operates in developing countries and it may not have the
information systems or other connections it would need. The factors that relate to
exposure are:

a) Extent of geographic areas covered by the supply chain

b) Political areas and borders crossed
c) Number of transportation modes and their speed
d) Technical infrastructure and its degree of use, and
e) Random occurences.

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b Suppliers-buyers Behavior in the Supply Chain

As it discussed above uncertainty and complexity are important aspects when supply
chain members face when operating in international supply chain turbulent environments.
Hence, their operating behavior is obviously affected by these two negative aspects.
Earlier and recent research studies has been addressed to the concept of “behavioral
uncertainty” and “environmental uncertainty” as two critical determinants of inter-firm
coordination (Heide and John, 1990; Anderson and Schmittlein, 1984; Anderson, 1988;
John and Weitz, 1989; Williamson, 1985; Stump and Heide, 1996; Johanson and Vahlne,
1997; Mohr and Spekman, 1996; Anderson and Narus, 1990; Brunard and Kleiner, 1994;
Kumar, 1996; Anderson and Buvik, 2001; Gatignon and Anderson, 1988; Klein et al.,
1990; Hill et al., 1990; Aulakh and Kotabe, 1997; Klein, 1989; Heide and John, 1990).
Behavioral uncertainty implies strategic distortion of information by taking advantage
upon a specific situation (Williamson, 1985). In international settings, behavioral
uncertainty is more viable and makes specification and evaluation of trade performance
and fulfillment of contract terms far more complex (Anderson and Buvik, 2001). Also,
trade partners in international trade are expected to be less familiar with foreign terms of
trade and trade custody and exposed to greater adaptation problems (Harrigan, 1985;
Vernon, 1982). This view is supported by international sbusiness literature (e.g. Kogut
and Singh, 1988), where higher behavioral uncertainty in international settings has been
explained by the lack of experienced knowledge (Johanson and Vahlne, 1997), and socio-
cultural differences between home and host cultures (Anderson and Gatignon, 1986;
Gatignon and Anderson, 1988; Erramilli and Rao, 1993).
Moreover, the negotiation process with a foreign exchange partner is expected to be more
time consuming and should induce substantial bargaining costs (Bradley, 1995; Campell
et al., 1988). Also, the costs of acquiring information needed to measure and evaluate the
performance of an exchange partner are expected to be higher in international trade than
between domestic exchange partners (Eriksson et al., 1997; Root, 1987).
In general terms, behavioral uncertainty arises from the difficulties associated with the
monitoring of the contractual performance of an exchange partner when bounded
rationality is present (Williamson, 1985). Behavioral uncertainty is expected to increase
the problem of performance evaluation and induce measurement costs, performance
evaluation costs (e.g. product quality assessment), adjustment costs (e.g. change orders),
and bargaining costs (e.g. negotiations of prices) (Anderson and Buvik, 2001). Also,
transaction costs (see Williamson, 1985) associated with performance evaluation could be
reduced by vertical integration (Weiss and Anderson, 1992) or by implementing hybrid
governance strategies (Heide and John, 1990l Christopher, 1990).
On the other hand, “environmental uncertainty” refer to as unanticipated changes in
circumstances surrounding an exchange (Noordewier et al., 1990). High environmental
uncertainty enforces the problems of writing a priori comprehensive contract, which in

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turn create adaptation problems (Williamson, 1985). While the unanticipated nature of
the external environment has been examined in domestic buyer-seller relationships
studies (Heide and John, 1990; Stump and Heide, 1996). Some research contributions
posit an interaction between buyer-seller as follows: High environmental uncertainty
coupled with high asset specificity demands vertical integration, while environmental
uncertainty in the absence of asset specificity favours market transactions (Anderson,
1985).
Therefore, uncertainty about buyer-seller relationships will prevail when an agreement is
being executed (e.g. technological changes) along with high complexity and performance
ambiguity. Under such circumstances profound on-going coordination attempts are
warranted in order to handle the subsequent problems of both adaptation and information
assymmetry (Anderson and Buvik, 2001).
As long as supply chain members engaged in excessive commitment, trust and
cooperation in their relationships (e.g. outsourcing), it would be beneficial and high
demanding outcomes can be easily obtained and analyzed for the good of both parties.
Either party’s commitment to the relationship is a clear indication that the party is serious
about achieving success and is willing to exert effort on behalf of the relationship (Mohr
and Spekman, 1996). Commitment in an outsourcing relationship might be measurable
by the supplier’s allocation of specific people to the contract, the regularity with which
the service team interacts with the client, the frequency with which the service team
might change and any other adaptations. Trust grows with commitment, and it starts with
taking the risk to trust the other party (Anderson and Buvik, 2001).
Hence, satisfaction in the outsourcing relationship will come about naturally with the
achievement of the client’s expectations. The expectations are partly defined by the
service level agreements, the contract and the firm’s initial outsourcing strategy terms,
but will also depend on how the supplier will react and respond to demands and changes
made by the client’s end-users.
It can be summarized, that commitment, trust, and satisfaction are the key elements of
eliminating behavioral uncertainty and environmental uncertainty, when companies and
partners are involved in international supply chains where turbulent environments exist.
The complexity experienced in the supply chain can be viewed, therefore, as a threat and
something that needs to be avoided or reduced, and thus it may force companies to
innovate, learn and develop new structures or patterns of behavior.

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