Supply Chain Strategies and Practices: A contingency model

Ph.D Candidate: Qi, YinanDept. Of Decision Sciences & Managerial Economics

March 8th, 2005

Outlines

IntroductionResearch questionsConceptual modelLiterature review & hypothesesMethodologyExpected ResultsQ&A

IntroductionSignificant challenges in today’s market

Individual businesses no longer compete as solely autonomous entities, but rather supply chains (Lambert and Cooper 2000)

How to effectively manage the flow of materials from supply resources to the customer (Mabert and Venkataramanan, 1998)

We need appropriate strategy to manage the operWe need appropriate strategy to manage the operations of supply chain.ations of supply chain.

““Match Your Supply Chain with Your Market” Match Your Supply Chain with Your Market” – – Mason-Jones et al. (2000)Mason-Jones et al. (2000)

Contingency theory –Contingency theory – Lawrence and Lorsh (1986) Lawrence and Lorsh (1986)The performance of an organization depends on the

appropriate fit between two or more factors

A model of Contingency theory-based strategic research

Input

EnvironmentalVariables

Strategy

Process

OrganizationalVariables

Output

Performance

Formulation(II)

Formulation(III)

Formulation(I)

Implementation(IV)

Source: Ginsberg & Venkatraman (1985)

External and internal factors Business strategy (Morash, 2001; Ward and Duray, 2000; Ward

et al., 1996)Environmental uncertainty (Chow et al., 1995; Narasimhan

and Kim, 2002; Yusuf and Adeleye, 2002)Product characteristics (Fisher, 1997; Huang et al, 2002;)

Strategies should be supported by practices

Impact of practices on performance

Research QuestionsWhat factors will have impact on decisions of supply chain strategies? How do those factors influence the supply chain strategies?

What kinds of supply chain management practices should firms choose to improve their competitiveness based on the selected strategy?

What are their impacts on firms’ performance?

Conceptual Model

Environments BusinessStrategy

Supply ChainStrategy Practices Performance

ProductChar.

Literature ReviewPorter’s (1980) generic strategies Cost leadership

Focus on such factors that can help a firm reduce cost and maintain a low-cost position in the competition

Differentiation The unique image or value of a firm’s product and service

Another view of strategy? We should view the strategic management from a new vi

ew of pursuing the commonalities among firms instead of an atomistic view. (Dess and Devis, 1984)

Bowersox et al. (1989)’s typologyprocess strategymarket strategychannel strategy

Fisher’s (1997) typologyefficient supply chainresponsive supply chain

Morash’s (2001) typologyoperational excellencecustomer closeness.

Cigolini et al. (2004)’s typology efficient supply chain lean supply chainquick supply chain.

Yusuf et al. (2003)’s typology lean supply chainagile supply chain

Comparison between previous findingsAuthors Findings Characteristics

Fisher (1997)

Efficient supply chain Cost reduction, functional products, supplier selection based on cost & quality

Responsive supply chain

Respond quickly to uncertainty, innovative products, supplier selection based on speed & flexibility

Morash (2001)

Operational excellence Minimize cost, eliminate waste, standardized products.

Customer closeness Collaborative communications with customers, high value-added products

Cigolini et al. (2004)

Efficient supply chain Commodities with high volume, focused on operation, high efficiency

Lean supply chain Compete simultaneously on price, novelty, quality and customer service

Quick supply chain Fashion-driven /technology-driven products, manufacturing flexibility

Comparison between previous findingsAuthors Findings Characteristics

Mason-Jones et al. (2000)

Christopher (2000) Yusuf et al. (2003)

Lean supply chain Commodities, predictable demand, low variety, cost reduction

Agile supply chain Fashion products, volatile demand, high variety, respond to customer

In conclusion, the basic supply chain strategies should include lean supply chain and agile supply chain, although they were described differently in previous literature.

Conceptualization

Lean supply chainForming a value stream from suppliers to

final customers to eliminate all kinds of buffering cost in the system and to ensure a level schedule in production in order to maintain the competitive advantage through economic of scale in a stable and predictable marketplace.

Conceptualization

Agile supply chainDeveloping a flexible and reconfigurable

network with partners to share competences and market knowledge in order to survive and prosper in a fluctuating market environment by responding rapidly and cost-effectively to changes

Distinguished Characteristics of leanness and agility

Distinguished attributes Lean supply Agile supply

Typical products Commodities Fashion goodsMarketplace demand Predictable VolatileProduct variety Low HighProduct life cycle Long ShortCustomer drivers Cost AvailabilityProfit margin Low HighDominant cost Physical costs Marketability costsStockout penalties Long-term Contractual Immediate and volatilePurchasing policy Buy materials Assign capacityInformation enrichment High desirable ObligatoryForecasting mechanism

Algorithmic Consultative

Source: Mason-Jones et al. (2000)

Literature review I

Business strategy & supply chain strategyVery few literatures regarding such a topicSupply chain strategy should support firm’s co

mpetitive objectivesMorash (2001)Cigolini et al. (2004)

Cost leadership needs lean supply chainLong-term and rigid relationship with suppliersStandard products to customersLow cost distribution

Differentiation needs agile supply chainFlexibility and speedCustomized goods Integration with suppliers, customers, and

even competitors.

Hypothesis 1

Hypothesis 1a The manufacturers are more likely to adopt lean su

pply chain strategy when they use overall cost leadership as their business strategy .

Hypothesis 1b The manufacturers are more likely to adopt agile s

upply chain strategy when they use differentiation as their business strategy .

Literature review IEnvironment and StrategyDifferentiation in volatile environment

and cost leadership in stable environment (Hofer, 1986, Kim and Lim , 1988, Miller, 1988 and Ward et al. , 1996)

Agile supply chain in less predictable environment (Christopher, 2000; Mason-Jones et al., 2000; Yusuf et al., 2003)

Lean supply chain in stable environment (Katayama and Bennett, 1996; Mason-Jones et al., 2000; Cooney, 2002; Yusuf et al., 2003)

Dimensions of environmental uncertainty In the research on business strategy (Dess and Beard, 19

84)MunificenceDynamismComplexity

In the research on supply chain (Chen and Paulraj, 2004)Demand uncertaintySupply uncertaintyTechnology uncertainty

Hypothesis 2Hypothesis 2a The manufacturers are more likely to adopt the

differentiation strategies (i.e. innovative differentiation, product differentiation and marketing differentiation) as the environments are more fluctuate.

Hypothesis 2bThe manufacturers are more likely to adopt the

overall cost leadership strategy as the environments are more stable and predictable.

Hypothesis 3Hypothesis 3a The manufacturers are more likely to adopt the lea

n supply chain strategy as the environments are more stable and predictable.

Hypothesis 3bThe manufacturers are more likely to adopt the agil

e supply chain strategy as the environments are more fluctuate.

Literature review II

Product characteristics and strategyFunctional products need efficient supply chain

and Innovative products need responsive supply chain (Fisher, 1997)

system – classify product into four clusters and different kinds of products need different manufacturing structure (Childhouse et al., 2002; Aitken et al., 2003)

3DWV

Production-dominant need scale-efficient process and mediation-dominant need scale-inefficient process (Randall and Ulrich, 2001)

Fashion goods need more agile supply chain (Bruce et al., 2004)

Innovative product need agile supply chain and standard product need lean supply chain (Huang et al., 2002)

Hypothesis 4Hypothesis 4aThe manufacturers are more likely to select

lean supply chain strategy as the products are more functional.

Hypothesis 4bThe manufacturers are more likely to select

agile supply chain strategy as the products are more fashionable.

Literature review III

Leanness vs agility – Cumulative modelFerdows and De Meyer (1990)

Building manufacturing capabilities in order: quality, delivery, flexibility, and cost

Noble (1995)Building manufacturing capabilities in order: quality,

dependability, delivery, cost, flexibility, innovation

Leanness and agilityAgility depends on a range of capabilities

such as TQM and JITBrown and Bessant (2003), Goldman et al. (1995)

Leanness may be a constituent of agilityChristopher (2000), Kidd (1994), Robertson and Jo

nes (1999)

Supply chain cost

Total Costs

Physical PDP Costs Marketability Costs

Lean supply chain Agile supply chain

Strategies and practices

Practice bundles Leanness Agility

JIT system OOO OOO

TQM OOO OOO

Supplier integration OOO OOO

Internal integration OOO OOO

Customer integration OO OOO

Customer enrichment O OOO

Organizational change O OOO

AMT OO OOO

Hypothesis 5Hypothesis 5a The manufacturers that focus on lean supply chain strateg

y will have high degree of adoptions of lean practices, such as JIT, TQM, supplier integration and internal integration.

Hypothesis 5b The manufacturers that focus on agile supply chain strate

gy will have almost equal degree of adoptions of the lean and agile practices including JIT, TQM, supplier integration, internal integration, customer integration, customer enrichment, organizational change and AMT.

Literature review IVPractices and PerformanceJIT purchasing has positive impact on performa

nce (Dong et al., 2001; Kelle and Miller, 1998)

JIT production system has positive impact on performance (Golhar and Stamm, 1991; Joo and Wilhelm, 1993)

TQM has positive impact on performance (Flynn et al., 1994; Ahire et al., 1996; Kaynak, 2003)

Postponement strategy has benefits to firms (Lee and Tang, 1997; Johnson and Anderson, 2000)

Supply chain integration has positive impact on performance (Narasimhan and Das, 1999; Fronlich and Westbrook, 2001)

Dimensions of business performanceOperational performance

Cost reduction, Inventory turnover, Labor productivity etc.Customer service

Pre-sale services, Product support, Dependability etc.Flexibility performance

Volume, Mix, New product flexibility

(Beamon, 1999; De Toni and Tonchia, 2001; Gunasekaran et al., 2001)

Hypothesis 6

Hypothesis 6H6a: The manufacturers can increase their

operational performance through the extensive use of the lean and agile practices.

H6b: The manufacturers can increase their customer service level through the extensive use of the lean and agile practices.

H6c: The manufacturers can increase their flexibility through the extensive use of the agile practices.

Methodology

Mail surveyFactor AnalysisSEM/Regression

Expected ResultsThe business strategies, environmental uncertainty and product characteristics are very important factors that have significant impact on the selection of supply chain strategy.The cumulative model is appropriate to describe the relationship between two supply chain strategies and the eight practices bundles.The congruence between environment, strategy and practices will lead to better performance.

Q & AQ & A