Supply Chains and Total Product Systems

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Supply Chainsand Total

Product SystemsA Reader

EditorsEd Rhodes, James P. Warren

and Ruth Carter

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Editorial material and organization © 2006 by The Open University

BLACKWELL PUBLISHING

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First published 2006 by The Open University and Blackwell Publishing

1 2006

Library of Congress Cataloging-in-Publication Data

Supply chains and total product systems : a reader / editors Ed Rhodes,James P. Warren and Ruth Carter.

p. cm.Includes bibliographical references and index.

ISBN-13: 978-1-4051-2410-2 (hardcover)ISBN-10: 1-4051-2410-5 (hardcover)ISBN-13: 978-1-4051-2409-6 (pbk.)

ISBN-10: 1-4051-2409-1 (pbk.)1. Business logistics. I. Rhodes, Ed. II. Warren, James P. III. Carter, Ruth.

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Contents

List of Figures viiiList of Tables xiEditors’ Note xivAcknowledgements xv

Introduction to the Reader 1

Part 1 Theoretical and Conceptual Issues 5

1.1 From Supply Chains to Total Product Systems 8Ed Rhodes

1.2 Supply Chain Management: Relationships, Chains and Networks 36C. M. Harland

1.3 Globalisation and Unequalisation: What Can Be Learned fromValue Chain Analysis? 50Raphael Kaplinsky

1.4 Lean Production and the Toyota Production System – Or, theCase of the Forgotten Production Concepts 69Ian Hampson

1.5 Lean Production in a Changing Competitive World: A JapanesePerspective 86Hiroshi Katayama and David Bennett

1.6 Integrating the Supply Chain: Industrial Relations Implicationsin US Grocery Distribution 97John Lund and Christopher Wright

v

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1.7 Intangibles: The Soft Side of Innovation 115Pim den Hertog, Rob Bilderbeek and Sven Maltha

1.8 The Environmental Challenge for Supply Chain Management 129Q. J. Leiper, P. Riley and S. Uren

Part 2 Inter-Organizational Relationships 141

2.1 Buyer–Supplier Relationships: A Case Study of a Japanese andWestern Alliance 145Shiran Cooray and Janek Ratnatunga

2.2 Avoid the Pitfalls in Supplier Development 158Robert B. Handfield, Daniel R. Krause, Thomas V. Scannelland Robert M. Monczka

2.3 Japanese Automakers, US Suppliers and Supply Chain Superiority 177Jeffrey K. Liker and Yen-Chun Wu

2.4 Innovation and Competition in UK Supermarkets 197Mark Harvey

2.5 The Similarity and Heterogeneity Theses in Studying Innovation:Evidence from the End-of-Life Vehicle Case 206Frank den Hond

2.6 Supply Chains and Management Accounting 223A. J. Berry, J. Cullen and W. Seal

2.7 Approaches to Child Labour in the Supply Chain 246Diana Winstanley, Joanna Clark and Helena Leeson

Part 3 Change within Organizations 265

3.1 Manufacturing Strategy Regained: Evidence for the Demiseof Best Practice 268Alan Pilkington

3.2 A Third-Culture Plant 280J. J. Fucini and S. Fucini

3.3 Lean Production: A Study of Application in a TraditionalManufacturing Environment 294L. Bamber and B. G. Dale

3.4 Lean Production and Sustainable Competitive Advantage 306Michael A. Lewis

vi CONTENTS

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3.5 Supporting Small Businesses in Their Transition to Lean Production 327M. L. Emiliani

3.6 Change Processes towards Lean Production: The Role of theManagement Accounting System 334Pär Åhlström and Christer Karlsson

3.7 Target Costing as a Strategic Tool 350John K. Shank and Joseph Fisher

3.8 Supply Chain Management for Recoverable Manufacturing Systems 365V. Daniel R. Guide Jr, Vaidyanathan Jayaraman, Rajesh Srivastavaand W. C. Benton

Part 4 Issues for SMEs 381

4.1 The Secrets of Industry Are in the Air or on the Jungle Drumsin the Village: Traded and Untraded Knowledge and Expertise:Interdependencies between SMEs 385J. R. Bryson and P. W. Daniels

4.2 Global Production and Local Jobs: Can Global Enterprise NetworksBe Used as Levers for Local Development? 405Florence Palpacuer and Aurelio Parisotto

4.3 The Role of an Integrator Organisation in a Virtual Supply Chain 430Frank Cave, Chris West and Alan Matthews

4.4 Issues on Partnering: Evidence from Subcontracting in Aeronautics 440Fernand Amesse, Liliana Dragoste, Jean Nollet and Silvia Ponce

4.5 Implementation of Just-in-Time Methodology in a Small Company 459Surendra M. Gupta and Louis Brennan

4.6 Learning from Others: Benchmarking in Diverse TourismEnterprises 468Michele Cano, Siobhan Drummond, Chris Miller and Steven Barclay

4.7 E-Business and E-Supply Strategy in Small and Medium SizedBusinesses (SMEs) 476B. A. Wagner, Ian Fillis and U. Johansson

Index 491

CONTENTS vii

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List of Figures

Chapter 1.1Figure 1 Grain flour supply chain: material flows from primary

processing to delivery 11Figure 2 Shipbuilding supply chain: convergence of intermediate

products 12Figure 3 Inter-organizational relationships 15

Chapter 1.2Figure 1 Supply chain management as a type of relationship 38Figure 2 Partnership as a type of relationship 40Figure 3 An inter-business supply chain 40Figure 4 Network model 42Figure 5 Forrester effect on supply chain performance 44Figure 6 Logistics chains 45

Chapter 1.3Figure 1 Price of developing country manufactured exports relative

to developed country manufactured exports of machinery,transport equipment and services 52

Figure 2 A simple value chain 54Figure 3 Competitive pressures in the value chain 56

Chapter 1.5Figure 1 The essential elements of lean production 87Figure 2 The past trend in Japanese manufacturing 88Figure 3 The relative costs of lean and adaptable production 91Figure 4 The cost sensitivity of lean and adaptable production 92Figure 5 The effect of non-linear costs 93

Chapter 1.6Figure 1 Supply chain 101

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Figure 2 Engineering and IT technologies deployed in grocerywarehousing 103

Chapter 1.8Figure 1 Supply chain cycle 131Figure 2 ESCM risk-based approach 135Figure 3 ESCM risk-based approach tools 135Figure 4 ESSCMo model 136Figure 5 Environmental impact of ironmongery supply chain 137Figure 6 ESCM portfolio matrix 138

Chapter 2.1Figure 1 Time–control divergence 151Figure 2 Effort–rewards structure in Japanese buyer–supplier relations 153

Chapter 2.2Figure 1 Commodity portfolio matrix 160Figure 2 Pareto analysis of supplier performance 161

Chapter 2.5Figure 1 ‘Styles’ in developing and implementing a recycling strategy

by European car manufacturers 212

Chapter 2.7Figure 1 The ‘Three-I’ model of corporate approaches to human rights 248

Chapter 3.1Figure 1 International car production volumes, 1950–90 269Figure 2 International value added per motor vehicle employee ($),

1986–90 270Figure 3 Net income for major Japanese car makers (million yen),

1990–6 271Figure 4 Value added to work in progress in automobile sector and

all sectors, US and UK 1973–92 276Figure 5 Finished goods as a percentage of all stocks in automobile

sector and all sectors, US and UK 1973–92 276

Chapter 3.4Figure 1 Lean production as outcome and process 309Figure 2 Defining elements of sustainable competitive advantage 312Figure 3 The lean production trajectory at each case company 320

Chapter 3.6Figure 1 The vision of the organization under the lean manufacturing

strategy 338

LIST OF FIGURES ix

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Figure 2 Summary of observations on the role of the managementaccounting system in the adoption process 342

Figure 3 The impetus for changing the management accounting system 344Figure 4 Raising the level of the unit of analysis in a management

accounting system for lean production 346

Chapter 3.8Figure 1 A recoverable product environment seeks to close the

materials-use cycle by using repair and remanufactureoperations to extend a product’s life; recycling is used onlywhen no value added remains 366

Chapter 4.1Figure 1 Traded and untraded information and knowledge flows

into SMEs 389Figure 2 Sources of external information and expertise consulted

by the 60 case study SMEs 399

Chapter 4.3Figure 1 The AATG aerostructures trading model 433

Chapter 4.4Figure 1 Structure of Quebec’s aeronautical industry 442

Chapter 4.5Figure 1 The flow process 461

Chapter 4.6Figure 1 Benchmarking method 472

Chapter 4.7Figure 1 Conceptual framework for e-business adoption 480Figure 2 Revised conceptual framework for e-business adoption 487

x LIST OF FIGURES

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List of Tables

Chapter 1.2Table 1 Relative merits of broad versus narrow networks 44

Chapter 1.3Table 1 Increasing competition and declining unit prices: the case

of jeans manufacturing in the Dominican Republic 53Table 2 Examples of legislative, judicial and executive value chain

governance 57Table 3 Scope for actions to promote the spreading of gains to

low income producers 64

Chapter 1.6Table 1 Leading US grocery and food distribution companies 102

Chapter 1.7Table 1 Components of intangible investments according to the

OECD, 1992 117Table 2 Some components of intangible investments for 10 countries,

as a percentage of GDP, 1992 118Table 3 Predominant intangible factors in innovation in five industries 124Table 4 Main categories of immaterial investment in the sector

case studies 125

Chapter 1.8Table 1 Carillion environmental supply chain management position

statement 132

Chapter 2.3Table 1 Comparing performance indicators for suppliers 182Table 2 Scheduling and shipping 184

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Table 3 Lean manufacturing practices on supplier production lines 186Table 4 Lean transportation practices between suppliers and auto plants 189

Chapter 2.5Table 1 Four stages in developing recycling strategies 209Table 2 Summarizing the similarity argument 213Table 3 Complementarity, technological opportunity and

appropriability determine the mode of coordinating thepreferred option 217

Table 4 Assessment of the end-of-life vehicle recycling options along thecomplementarity, technological opportunity and appropriabilitydimensions 219

Chapter 2.6Table 1 Development of supply chains 229Table 2 Development of management accounting responses 241

Chapter 2.7Table 1 The risks and rewards of taking the involvement and the

indifference approaches to human rights 250Table 2 Levels of engagement of key stakeholders 255Table 3 Range of nationalities and cultures: Adidas operation in

Vietnam 257

Chapter 3.1Table 1 The manufacturing effectiveness of Japanese car

manufacturers, 1990 272

Chapter 3.3Table 1 Examples of management characteristics 296

Chapter 3.4Table 1 Value added ($) per motor vehicle employee, 1986–90 308Table 2 Lean production characteristics and the case studies 315Table 3 The interview schedule 316Table 4 Lean production outcomes 318

Chapter 3.7Table 1 Value chain analysis of one use of Forest Green Carnival 354Table 2 Standard cost report for Forest Green Carnival 355Table 3 Overall cost summary for Forest Green Carnival 355Table 4 Calculating competitive target cost for the Montclair mill 357Table 5 Distribution Center deductions from allowable target cost 358Table 6 Ideal cost and allowable variance for Forest Green

Carnival 358

xii LIST OF TABLES

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Table 7 Cost breakdown of other materials and dyes before use ofgreen fiber 361

Table 8 Conversion cost reduction achieved in eighteen months 361Table 9 Revised achievable standard cost and revised ideal cost of

Forest Green Carnival 362

Chapter 3.8Table 1 Differentiating factors for recoverable options, showing that

repair, remanufacture, and recycling require varying amountsof effort to reuse materials and products 368

Table 2 Comparison of the recoverable manufacturing environmentand the traditional manufacturing environment by area ofresponsibility, showing that managers should consider theinherent uncertainties 370

Chapter 4.1Table 1 Characteristics of the respondents to the postal survey 390Table 2 Strengths and weaknesses in particular management areas 392Table 3 Strengths and weaknesses in the use of external advisers

by location of SMEs 392Table 4 Use of public sector advice services 394Table 5 Reasons for using or not using public sector advice agencies 394Table 6 Tasks undertaken by consultant 395Table 7 How the last private sector adviser employed was identified 395Table 8 Proportion of SMEs using private sector external advisers

for particular types of advice 396

Chapter 4.4Table 1 Approaches for defining subcontracting 444Table 2 Identified criteria for subcontracting characteristics 445Table 3 Integrated framework for assessing technology transfer in

subcontracting 448

Chapter 4.5Table 1 Process-based problems, JIT implementation steps and benefits 467

Chapter 4.7Table 1 Industry sector of participating firms 482

LIST OF TABLES xiii

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Editors’ Note

This reader has been produced in conjunction with an Open University course T882Supply Chain Innovation, Strategy and Management, part of a Masters programmein Technology Management. The course is primarily intended for students and practi-tioners in the field of supply chains and total product systems. However, in commonwith this book, it is also of interest to a much wider audience (see www.open.ac.uk/courses).

The reader includes material drawn from an extensive range of sources and dis-ciplines. The case studies in the chapters illustrate practice in four continents andmany countries. We believe that its breadth is distinctive, both in scope and in focus.

Our focus is on the complete ‘cradle-to-grave’ life cycle of total product systemsand not, as the casual browser might assume, on purchasing and supply. This isreflected in the selections we present.

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Acknowledgements

We wish to thank all those who contributed to the preparation of this reader, inparticular colleagues at the Open University: Giles Clark for supporting our projectand finding a publisher; Katie Meade for copyright clearances; Roger Harris for histhorough approach in linking the reader to course materials; Clive Walter, SeniorResearch Fellow in the Centre for the Analysis of Supply Chain Innovation andDynamics (CASCAID), for comments and suggestions; and Deirdre Bethune inMilton Keynes and Simon Betts in Cambridge for their solid secretarial and clericalassistance, taking on those tedious tasks without which the reader could not havebeen produced. We are also indebted to Rosemary Nixon, Joanna Pyke, BrianGoodale and Linda Auld of the Blackwell team for transforming the papers into areadable book.

Any omissions are unintentional.

Grateful acknowledgement is made to the following sources for permission toreproduce material within this book:

1.1 With permission from Ed Rhodes.1.2 Harland, C. M. ‘Supply Chain Management: Relationships, Chains and

Networks’, British Journal of Management, vol. 7, Special Issue, March 1996.Blackwell Publishing Ltd.

1.3 Kaplinsky, R. ‘Globalisation and Unequalisation: What Can Be Learned fromValue Chain Analysis?’, Journal of Development Studies, Special Issue. FrankCass & Co. Ltd 2000.

1.4 Hampson, I. ‘Lean Production and the Toyota Production System – Or, theCase of the Forgotten Production Concepts’, Economic and Industrial Demo-cracy, vol. 20, no. 3. © Sage Publications Ltd 2000.

The research and fieldwork for this article were supported by a grant fromthe Faculty of Commerce and Economics of the University of New SouthWales.

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1.5 Katayama, H. and Bennett, D. ‘Lean Production in a Changing CompetitiveWorld: A Japanese Perspective’, International Journal of Operations & Produc-tion Management, vol. 16, no. 2, 1996. MCB University Press Ltd.

1.6 Lund, J. and Wright, C. ‘Integrating the Supply Chain: Industrial RelationsImplications in US Grocery Distribution’, New Technology, Work and Employ-ment, vol. 18, no. 2, 2003. Blackwell Publishing Ltd.

1.7 Den Hertog, P., Bilderbeek, R. and Maltha, S. ‘Intangibles: The Soft Side ofInnovation’, Futures, vol. 29, no. 1. Copyright 1997, reprinted with permissionfrom Elsevier.

1.8 Leiper, Q. J., Riley, P. and Uren, S. ‘The Environmental Challenge for Supply-Chain Management’, Proceedings of The Institution of Civil Engineers: CivilEngineering Special Issue, vol. 238, no. 2, 2000. The Institution of CivilEngineers, with permission from Professor Q. J. Leiper.

2.1 Cooray, S. and Ratnatunga, J. ‘Buyer–Supplier Relationships: A Case Study ofJapanese and Western Alliance’, Long Range Planning, vol. 34. © 2001,reprinted with permission from Elsevier.

2.2 Handfield, R., Krause, D. R., Scannell, T. V. and Monczka, R. M. ‘Avoid thePitfalls in Supplier Development’, Sloan Management Review, Winter 2000.Tribune Media Services International.

2.3 Liker, J. and Wu, Y.-C. ‘Japanese Automakers, US Suppliers and Supply-ChainSuperiority’, Sloan Management Review, Fall 2000. Tribune Media ServicesInternational.

2.4 Harvey, M. ‘Innovation and Competition in UK Supermarkets’, Supply ChainManagement, vol. 5, no. 1, 2000. MCB University Press Ltd.

2.5 den Hond, F. ‘The “Similarity” and “Heterogeneity” Theses in StudyingInnovation: Evidence from the End-of Life Vehicle Case’, Technology Analysis& Strategic Management, vol. 10, no. 4, 1998. Taylor & Francis Ltd, 4 ParkSquare, Milton Park, Abingdon, OX14 4RN.

The end-of-life vehicle case study was financially supported by the EC DGXIIMonitor/SAST and HuCaMo programmes.

2.6 Berry, A. J., Cullen, J. and Seal, W. Supply Chains and Management Account-ing, Open University Seminar, 24 February 1999. CIMA with the support ofISCAN in Sheffield.

The research project on supply chains and management accounting wasfinanced by the Chartered Institute of Management Accountant (CIMA) withthe support of Innovative Supply Chains and Networks (ISCAN).

2.7 Winstanley, D., Clark, J. and Leeson, H. ‘Approaches to Child Labour in theSupply Chain’, Business Ethics: A European Review, vol. 11, no. 3, 2002.Blackwell Publishing Ltd.

3.1 Pilkington, A. ‘Manufacturing Strategy Regained: Evidence for the Demise ofBest-Practice’, California Management Review, vol. 41, no. 1. Copyright ©1998 by the Regents of the University of California. Reprinted by permissionof The Regents.

3.2 Fucini, J. I. and Fucini, S. Working for the Japanese: Inside Mazda’s AmericanAuto Plant. Copyright © 1990 by Joseph J. Fucini and Suzy Fucini. Reprinted

xvi ACKNOWLEDGEMENTS

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with permission of The Free Press, a Division of Simon & Schuster AdultPublishing Group.

3.3 Bamber, L. and Dale, B. G. ‘Lean Production: A Study of Application in aTraditional Manufacturing Environment’, Production Planning & Control,vol. 11, no. 3, 2000. Taylor & Francis Ltd, 4 Park Square, Milton Park,Abingdon, OX14 4RN.

3.4 Lewis, M. A. ‘Lean Production and Sustainable Competitive Advantage’,International Journal of Operations & Production Management, vol. 20, no. 8,2000. MCB University Press Ltd.

3.5 Emiliani, M. L. ‘Supporting Small Businesses in Their Transition to LeanProduction’, Supply Chain Management: An International Journal, vol. 5,no. 2, 2000. MCB University Press Ltd.

3.6 Åhlström, P. and Karlsson, C. ‘Change Processes towards Lean Production:The Role of the Management Accounting System’, International Journal ofOperations & Production Management, vol. 16, no. 11, 1996. MCB UniversityPress Ltd.

3.7 Shank, J. K. and Fisher, J. ‘Target Costing as a Strategic Tool’, Sloan Manage-ment Review, Fall 1999. Tribune Media Services International.

3.8 Guide, V. D. R. Jr, Jayaraman, V., Srivastava, S. and Benton, W. C. ‘Supply-Chain Management for Recoverable Manufacturing Systems’, Interfaces, vol. 30,no. 3, May–June 2000. Copyright © 2000 the Institute for OperationsResearch and the Management Sciences (INFORMS), 901 Elkridge LandingRoad, Suite 400, Linthicum, Maryland 21090-2909 USA. Reprinted bypermission.

4.1 Bryson, J. R. and Daniels, P. W. ‘The Secrets of Industry Are in the Air or“on the Jungle Drums in the Village”: Traded and Untraded Knowledge andExpertise Interdependencies between SMEs’, 21st ISBA National Small FirmsConference: Celebrating the Small Business, 1998. With permission of Dr JohnBryson.

The research on which this article is based was supported by a research grantfrom the Economic and Social Science Research Council (ESRC) (R000236366)and by the NatWest Group Charitable Trust. Any views expressed do not neces-sarily reflect those of the sponsoring organizations.

4.2 Palpacuer, F. and Parisotto, A. ‘Global Production and Local Jobs’, GlobalNetworks, vol. 3, no. 2. Copyright © 2003 Blackwell Publishing Ltd & GlobalNetworks Partnership.

4.3 Cave, F., West, C. and Matthews, A. ‘The Role of an Integrator Organisationin a Virtual Supply Chain’, Proceedings of the 32nd EISB International Con-ference, September 2003.

4.4 Amesse, F., Dragoste, L., Nollet, J. and Ponce, S. ‘Issues on Partnering:Evidences from Subcontracting in Aeronautics’, Technovation, vol. 21. © 2001,reprinted with permission from Elsevier.

4.5 Gupta, S. M. and Brennan, L. ‘Implementation of Just-in-Time Methodologyin a Small Company’, Production Planning & Control, vol. 6, no. 4. Taylor &Francis Ltd, 4 Park Square, Milton Park, Abingdon, OX14 4RN.

ACKNOWLEDGEMENTS xvii

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4.6 Cano, M., Drummond, S., Miller, C. and Barclay, S. ‘Learning from Others:Benchmarking in Diverse Tourism Enterprises’, Total Quality Management,vol. 12, no. 7/8, 2001. Taylor & Francis Ltd, 4 Park Square, Milton Park,Abingdon, OX14 4RN.

4.7 Wagner, B. A., Fillis, I. and Johansson, U. ‘E-Business and E-Supply Strategyin Small and Medium Sized Businesses (SMEs)’, Supply Chain Management:An International Journal, vol. 8, no. 4, 2003. Emerald Group Publishing Ltd.Copyright © MCB University Press Ltd.

Every effort has been made to contact copyright owners. If any have been inadvertentlyoverlooked, the publishers will be pleased to make the necessary arrangements.

xviii ACKNOWLEDGEMENTS

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INTRODUCTION TO THE READER 1

Introduction to the Reader

In the development of this reader we had four main, and interrelated, considerationsin mind. First, the term ‘supply chain’ presents a number of analytical difficulties.It is widely used among managers and by some academic observers as a genericshorthand. But it is applied to widely differing types of approach. In relation tosupply chain management (SCM), Harland (Chapter 1.2) observes that ‘there islittle consistency in the use of the term and little evidence of clarity of meaning’, apoint that is illustrated by four main categories of use. These range from manage-ment of the intra-firm supply chain through to management of networks of inter-connected businesses. Furthermore, supply chain practice is evolving dynamically,adding to the lack of clarity. An additional difficulty is that, across the wider litera-ture, ‘supply chain’ jostles with a range of other conceptualizations which broadlyfocus on much the same phenomena but with different emphases. Alternative con-ceptualizations include ‘value chains’ (used by a variety of authors developing fromPorter, 1985 – and subsequently among practitioners who appreciated its disciplinedfocus), ‘supply networks or inter-business networks’ (e.g. Harland, Chapter 1.2;Harland et al., 2004), ‘global production networks’ (e.g. Palpacuer and Parisotto,Chapter 4.2), ‘commodity chains’ (e.g. Hopkins and Wallerstein, 1986; 1994; Gereffiand Korzeniewicz, 1994), ‘global commodity chains’ (e.g. Gereffi and Korzeniewicz,1994; Raikes et al., 2000), ‘product systems’ (e.g. Lauret, 1983) and ‘total productsystems’ (Rhodes, Chapter 1.1).

These various concepts reflect differences in the purpose of analysis and in academictraditions which, in turn, are reflected in contrasting emphases in analysis and diversityin interpretation. The variety of approaches emphasizes that cross-disciplinary per-spectives are important for the development of a comprehensive understanding ofthese phenomena and their implications, both for practitioners and for the widersociety. Thus we have sought to reflect some of the diversity in analysis.

The second consideration was that this appears to be a field that is already wellprovided for. Although this is of fairly recent origin as a subject area, the body ofnon-journal supply chain literature has become voluminous. This is illustrated by the

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2 INTRODUCTION TO THE READER

108,837 publications that were listed in a search for ‘supply chain’ at Amazon.com(August 2004). This may indicate a particular American preoccupation with thesubject area (a search at Amazon.co.uk produced a mere 337 results). This volumeof publication may also relate to perceived shortcomings among US companies inthis respect, particularly in comparison with leading Japanese companies, such asin the automotive sector (Dyer, 1996). Alternatively – or as well – it may reflect thesubject’s location within the cockpit of management fashion or, more simply, it mayrepresent recognition of the critical nature of this area of management for com-petitive performance.

Whatever the reasons, the scale of existing publication presents a challenge interms of establishing market distinctiveness. We take the view that the combinationof readings in this volume, which are drawn from diverse research and practitionersources, and which provide a range of contrasting perspectives and concerns, doprovide a collection that is differentiated from the bulk of existing material. Whilewe have only been able to review a small proportion of the 108,837 publicationsreferred to above, they mostly appear to range from prescriptive manuals concernedwith, say, the implementation of a particular supply chain software package throughto more comprehensive volumes advancing, and seeking to develop, concepts ofbest practice in areas such as purchasing and supply, logistics or supply chain man-agement and strategy. The latter are concerned with fundamental areas, but we suggest(in Chapter 1.1) that practice is moving on. In particular, combinations of the strategiesof lead companies and external regulation such as on environmental and labour issuesare pushing de facto practice towards what we term ‘total product systems’. Managementin this context require management approaches that are even more holistic that thoseof integrated SCM.

Third, we have been concerned to emphasize the relevance of ‘supply chain’ issuesto a broader group of practitioners and academics than has generally been concernedwith them. Lund and Wright (Chapter 1.6) suggest that much of the discussionabout SCM is undertaken from engineering and logistics perspectives. They point tothe absence of consideration – and limited awareness among practitioners – of theimplications of changing supply chain practice for industrial relations, their own areaof concern. This is only one of several areas of analysis that receive limited attentionin both the standard supply chain texts and the wider supply chain literature. Onesuch is accountancy which, as Berry et al. (Chapter 2.6) observe, tends to ignorevalue created outside the firm – a surprising gap when it is common for well over50 per cent of an organization’s costs to derive from external purchasing. But theyalso found that management accounting practice is being modified by ‘the supplychain impact’. Such gaps lead Harland et al. to observe that the ‘existing literatureon supply networks tends to focus on the integration of logistic activities andresources; little attention has been paid to more behavioural aspects, such as howindividual actors in supply networks resolve conflicts or make decisions’ (2004,p. 18).

The issues extend beyond the particular problems of adjustment within particularmanagement functional areas. Much of the evolution of supply chain strategy and

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INTRODUCTION TO THE READER 3

practice has been driven under the umbrella of SCM, and this has been a majorfactor in reshaping practice and strategy in organizations of all types. But changes inapproach to product supply are, in growing numbers of cases, linked to majorreorganizations of activities that are global in their reach. SCM strategies are primarilyshaped by large organizations that are dominant in particular products, brands orcategories. In the main, the lead organizations are based in the industrialized coun-tries but operate on a transnational or a global scale. Their corporate structures haveevolved from the predominant model of the past of ‘a portfolio of national businesses’and towards forms that are unified on a transnational or a global scale (Murray andTrudeau, 2004). The process has been well summarized by Gereffi (1994) in termsof ‘the emergence of a global manufacturing system in which production capacity isdispersed to an unprecedented number of developing as well as industrializedcountries . . . The revolution in transportation and communications technologies haspermitted manufacturers and retailers alike to establish international production anddistribution networks that cover vast geographical distances.’ Thus the managementand functioning of supply chains – and total product systems – and their impactsneed to be considered on this scale, as is reflected in several of the chapters in thisvolume.

Fourth, our selection was shaped by the intention to use this reader within anOpen University postgraduate course on supply chain innovation, strategy and man-agement that forms part of a Masters in Technology Management. The studentstaking this course were expected to be (and are) mostly experienced managers, andso the combination of academic criteria and relevance to those able to draw on asubstantial reservoir of experience has also contributed to the process of selection.Thus, while much of the material is academic, and includes a range of researchstudies drawn from many sectors, there is also an emphasis on experience in practice.Consequently, we hope that it will be relevant to two other groups: first, studentsfrom a variety of academic backgrounds with concerns within, or impinging on, thebroad supply chain and product system area; and second, senior and middle managerswho wish to extend their knowledge, awareness and capabilities in this rapidlydeveloping context. It is pertinent to the service, manufacturing and process sectors,including the public sector as the significance of supply chain issues is given greaterrecognition there, and to many, if not most, management functions, includingfinance, design, production, environmental management, information systems andmarketing – as well as logistics and purchasing.

This reader has four major parts concentrating on the following themes:

• theoretical and conceptual issues within the supply context;• inter-organizational relationships within product systems;• accomplishing change within organizations (i.e. intra-organizational development

and practice);• issues and challenges for small and medium enterprises (SMEs) presented by

large-firm-driven supply chain integration, and potential responses for theseenterprises.

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4 INTRODUCTION TO THE READER

REFERENCES

Dyer, J H: Does governance matter? Keiretsu alliances and asset specificity as sources ofJapanese competitive advantage, Organization Science, vol. 7, no. 6, 1996

Gereffi, G: The organization of buyer-driven global commodity chains: how US retailersshape overseas production networks, in Gereffi, G & Korzeniewicz, M: Commodity Chainsand Global Capitalism, Greenwood, Westport, CT, 1994

Gereffi, G & Korzeniewicz, M: Commodity Chains and Global Capitalism, Greenwood,Westport, CT, 1994

Harland, C, Zheng, J, Johnsen, T & Lamming, R: A conceptual model for researching thecreation and operation of supply networks, British Journal of Management, vol. 15, no. 1,2004

Hopkins, T K & Wallerstein, I: Commodity chains in the world economy prior to 1800,Review, vol. 10, no. 1, 1986

Hopkins, T K & Wallerstein, I: Conclusions about commodity chains, in Gereffi &Korzeniewicz, 1994

Lauret, F: Sur les études de filières agro-alimentaires, Économies et Sociétés, vol. 17, no. 5,1983, quoted in Raikes et al., 2000

Murray, G & Trudeau, G: Towards a social regulation of the global firm?, RelationsIndustrielles/Industrial Relations, vol. 59, no. 1, 2004

Porter, M: Competitive Advantage: Creating and Sustaining Superior Performance, Free, NewYork, 1985

Raikes, P, Jensen, M F & Ponte, S: Global commodity chain analysis and the French filièreapproach, Economy and Society, vol. 29, no. 3, 2000

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FROM SUPPLY CHAINS TO TOTAL PRODUCT SYSTEMS 5

Part 1

Theoretical andConceptual Issues

In this part we address some of the fundamental issues in supply chain innovation,strategy and management.

Ed Rhodes (Chapter 1.1) sets out the approach which underpins the emphasis inthis book on holistic treatments of analysis and practice in the supply chain context.The chapter provides an introduction to supply chain practice and to some key waysin which it is analysed. It develops the case for moving from a fairly narrow focus onsupply chain problems and performance to more systemic views that reflect emerg-ing practice in lead companies, and which take account of the effects of evolvingregulatory regimes related to environmental and other issues. These are reshapingapproaches to product design and process organization across a supply chain, con-tributing to changes in supply in the aftermarket, and bringing the processing ofend-of-life products into a central role. These changes are conceptualized as ‘totalproduct systems’. They encompass the conventionally defined areas of supply chainactivity together with the aftermarket and end-of-life phases. Among other issues,this emphasizes the importance of integrated management of the various componentand materials feedback loops within product and aftermarket processes. The mater-ials inputs and waste emissions associated with all stages of production are alsointegral to systemic management of supply chains and product systems.

Harland (Chapter 1.2) traces the development and application of the term ‘supplychain management’ (SCM) since its appearance in the early 1980s. The reviewidentifies four different, distinct uses of SCM and the literature associated with eachof them. It builds a systemic framework – for SCM research and practice – linkingthese approaches and emphasizes the network character of strategic, inter-businessSCM.

Kaplinsky (Chapter 1.3), writing from the perspective of a scholar in developmentstudies, discusses the impact of globalized value chains (essentially synonymous withsupply chains), teasing out some critical lessons from the way in which they operate.He emphasizes growing inequalities, both between countries and within industrial-ized and developing countries, and suggests that the critical issue for participation inthe global economy is identifying approaches that are likely to yield both sustainable

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6 ED RHODES

and equitable growth in incomes for the participants. Analysis of value chains iscritical to the processes of identification, and Kaplinsky suggests three critical ele-ments of this analysis: dynamic rents, governance and systemic gains in efficiency.Governance is a particularly important issue for understanding the functioning ofsupply chains and value chains, and Kaplinsky suggests a typology of three forms ofintra-chain and external governance: legislative, which sets the conditions for parti-cipating in the chain; judicial, which audits performance and compliance with theconditions; and executive, that is proactive governance which helps participants withinthe chain to operate to meet the conditions set. He emphasizes that governance isthe responsibility not only of lead companies, but of all organizations within thechain. His chapter provides some insights into the importance of corporate andgovernmental policy formulation and implementation with respect to globalizedproduct systems.

The next two chapters, Hampson (Chapter 1.4) and Katayama and Bennett(Chapter 1.5), describe, analyse and, taken together, develop a powerful critique oflean production. They demonstrate that, despite their many proponents in manu-facturing sectors, lean approaches, with their inevitable rigidities, are not alwaysappropriate for tackling production issues. If they are abstracted from their originalcontext and applied elsewhere, the benefits claimed for them, such as high skill levelsand a job for life, often turn out to be illusory. Out of context, they bring stress,have variable benefit and may not be sufficiently supply chain specific.

Hampson focuses on the political environment and industrial relations aspects oflean manufacturing such as quality of work and working conditions – in particular,how to counter ‘management by stress’. (Shockingly, he refers to studies of karoshi– death from overwork – in Japanese lean production plants.) His conclusionsconcern the potential for industrial relations systems to shape the outcomes of workreorganization. Katayama and Bennett are concerned with issues of technical organ-ization and draw on case studies, undertaken in the mid 1990s, in four differentJapanese manufacturing plants (autos, PCBs, refrigerators and air conditioners).They find lean production lacking in robustness in a climate of variable demand,which leads them to develop the notion of ‘adaptable production’ – the moreversatile design of production systems to allow for changing circumstances.

Supply chain practice is primarily shaped by large, lead companies such as brandmanufacturers and retailers. These are able to use their large market shares andbuying power to shape practice within the firms involved in the various productionstages. This tends to include an emphasis on cost reduction throughout a chain,which is achieved through one combination or another of improvements in organiza-tion and practice applied by most firms in a chain, the use of advanced logisticsmethods and a continuous, global search for low cost sources. Among other issues,these approaches put pressure on wage costs and working conditions, particularly inhigh wage industrialized countries (ICs). A critical issue is then: how can workersand unions in the ICs respond to these challenges? In Chapter 1.6, Lund andWright review aspects of supply chain practice and consider the impact of supplychain integration on industrial relations. They draw on experience in the US grocerysector to examine the issues. They suggest that management–union relationships can

6 THEORETICAL AND CONCEPTUAL ISSUES

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FROM SUPPLY CHAINS TO TOTAL PRODUCT SYSTEMS 7

be changed in some powerful ways but that these are not all one sided. Integratedsupply chain practice can create both challenges and opportunities for all the partiesinvolved. For example, inter-organizational collaboration can bring advantages tothe organizations involved but also involves dependencies and vulnerabilities. Unionsand their members can derive bargaining and other advantages from these changes.But this requires new approaches, such as action that is more inclusive in relation tothe wider community – for example, developing awareness among consumers to thepoint where they are prepared to give support through boycotts and other action.

On a more specific issue that links knowledge management (KM) to changeprocesses, den Hertog et al. (Chapter 1.7) draw our attention to the way that‘intangible investments are still a widely underestimated area of the knowledge-based economy’. They discuss ‘de-materialization’ – in which a steadily increasingshare of value in a product can now be attributed to intangibles, for example training,licensing, distribution and servicing. Such intangibles represent the soft componentsof innovativeness and competitiveness. They explore definitions of intangible invest-ments and examine their role in five sectors: fashion, flowers, brewing, publishingand financial services. Their conclusions point to the increasing role of service activ-ity in innovation and the development of greater numbers of linkages and mutualdependencies between industrial and service organizations. The authors emphasizethe importance of knowledge management within organizations and suggest thatfuture industrial and technology policy must take account of the higher profile ofintangible investments in innovation processes. This underlines the growing import-ance of a systemic view of supply activity which values and seeks to understand richinter-organizational connectivity.

Leiper et al. (Chapter 1.8) illustrate one aspect of the total product system con-cept through a case study of an environmental supply chain management (ESCM)initiative in a leading construction company. They report a substantive shift in thesector’s environmental agenda from such concerns as waste minimization andenvironmental project management to considering ‘the more complex issues of sus-tainability and the life-cycle impacts of products and services used and consumedin the creation, maintenance and operation of the built environment’. In their casestudy they evaluate the extent to which four key ‘best practice activities’ have beenapplied by the company. They find that the commitment and performance of themany suppliers involved in a construction project are paramount for the main con-tractor and describe an array of tools and techniques that were applied. Theseinclude a risk-based approach to ESCM and introducing SME suppliers to asustainability philosophy through a programme of training and accreditation. Theyconclude by identifying a major sectoral challenge: to convince as yet unconvertedclients and suppliers of ‘the benefits of a business philosophy centred on environ-mental awareness and the concept of sustainability’.

THEORETICAL AND CONCEPTUAL ISSUES 7

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8 ED RHODES

1.1

From Supply Chains toTotal Product Systems

Ed Rhodes

Introduction

The evolution of supply chain management and practice has had an integral andexpanding role in contemporary global economic and socio-political change over thepast 25 years or so. This role is moving closer to centre stage with the emergence ofbusiness models equating to ‘total product systems’. The impacts of advanced supplychain practice include driving fundamental changes in approach to product design,the concept of ‘product’, production methods, distribution, marketing, aftermarketsupport and end-of-life (EOL) reprocessing. Viewed in their full context, methodsof supply chain management (SCM) have major influences on societal functioningand on economic development at global, national and local levels. Even the supplychains for simple products can involve several different industries and link manycompanies, large and small. Those for complex products may span several techno-logical domains and economic sectors, linking hundreds or sometimes thousands ofcompanies.

Complexity is evident, for instance, in the scale and scope of supply chain opera-tion in capital and consumer goods sectors (such as aircraft, cars and apparel) and inservices (such as hotel chains, fast-food franchises and financial services). In suchcases, elements of the design, production and distribution processes associated withan end-product, together with the associated management and support services, maybe carried out in large numbers of organizations in many countries in all continents.This provides the context in which ‘a very small firm in one country may be directlylinked into a global production network’ (Dicken, 2004, p. 253). ‘Geographicdispersion has occurred on a massive scale’ (Ernst, 2002, p. 504). Supply chainorganization has provided the channels through which much of this has occurred.Consumer and other products, together with the methods of production and market-ing that underpin them, are projected from the countries of the industrial core into

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FROM SUPPLY CHAINS TO TOTAL PRODUCT SYSTEMS 9

those of the semi-periphery and periphery, reshaping economies and societies. Butthis is not one-way traffic. There is also substantial movement in the oppositedirection as patterns of specialization and integration are fostered on a global scale.Also, transnational companies have developed in newly industrialized countries (NICs)and in some developing countries (DCs), and become engaged in similar manage-ment of supply chains on an international or global scale. At the individual level,developing supply chain practice is directly or indirectly reshaping people’s lives,whether as workers (in all categories), subsistence farmers, consumers or owners ofsmall retail and other businesses. Those not affected must now be a dwindlingminority of the world’s population.

An extensive academic literature is concerned with aspects of these phenomena.Much of it is located in management accountancy, business management, organiza-tional behaviour, and various branches of economics, as well as the supply chain‘mainstream’. Not surprisingly, the mainstream literature is primarily concerned withoverall supply chain strategy, with practice in areas such as purchasing and logistics,and with analysing issues of ‘lean supply’ and other perceived problems. The emphasisof this literature is primarily technicist, presenting supposedly ‘neutral’ solutions tocurrent managerial preoccupations. There is a focus on what are thought to be themost efficient methods for achieving high standards of performance in target areasthat include cost reduction, managing outsourcing, shortening replenishment cycles,minimizing inventory, achieving consistent high standards of product quality, reduc-ing time to market and ‘getting close to the customer’.

These are highly significant competitive objectives, although the difficulties con-fronting those who seek to achieve them are not always adequately explored or areunderestimated. Supply chains are highly complex phenomena, and the long termchallenges of co-ordinating and developing their functioning are ill matched withmanagerial cultures where rapid career moves are combined with the influence ofsuccessive management fads and fashions (Pascale, 1990; Scarborough and Swan,2001; MacDonald, 2004). A further problem is that supply chain practice tends tobe abstracted from its broader contexts and effects. For example, the pursuit of costreduction on a global scale takes several routes. Increased outsourcing has beenone of the vehicles of change, and the search for suppliers offering ever lower costscan lead to suppliers who exploit lax regulation of labour conditions, environmentalprotection, and so on. The product flow in such cases has been traced to largeretailers and brand owners with highly damaging consequences – a factor that isreshaping approaches to SCM.

It might be expected that these broader socio-economic issues are central to thesupply chain literature. Instead (with some exceptions) they are the concern of dif-ferent bodies of literature including development studies, geography, industrial rela-tions and some branches of economics. For instance, development studies specialistsseek to understand the relationships between commodity chain functioning andeconomic development and associated extreme disparities in the global distributionof economic activity and wealth. Approaches from these fields potentially contributetowards more holistic perspectives of contemporary supply chain functioning andmanagement. However, as Harland points out (Chapter 1.2), the various bodies of

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10 ED RHODES

knowledge ‘have remained largely unconnected’ – although she and colleagues havesubsequently taken steps towards establishing such connections (Harland et al.,2004). If there is a shift towards management of total product systems as is sug-gested here, multi-disciplinary research and analysis are ever more urgent.

Different academic traditions apply a varied terminology to what, broadly, are thesame phenomena. Usage includes supply networks, value chains, global commoditychains and product systems. The chain metaphor is probably the most widely used,particularly among practitioners. But it conveys images of rigidities, whereas themultiple connections, the dynamic changes in patterns of sourcing and the variedroles of the actors that are found in practice, are more adequately captured by themetaphors of networks and systems. A further step is needed – I suggest the conceptof total product systems – to capture the full implications of current advances inpractice. Combinations of factors, including the lead actors’ competitive strategies,activism among consumer, union and other groups, and the effects of environmentalregulation are reshaping the SCM agenda. This is reflected in evolving approaches toproduction and product design and organization, and in shifts towards integratedmanagement of the four phases of the ‘cradle-to-grave’ (C2G) product life cycle:

1 production phase – all stages from raw material generation through intermediateprocessing stages to completion of end-products;

2 distribution and sale of end-products;3 product use and support in the aftermarket;4 end-of-life (EOL) stages.

The rest of this chapter is divided into two main sections. The first establishes someof the main contours and issues evident in supply chain development. The secondreviews the concept of total product systems as an extension of SCM.

Mapping the Issues

Supply chain evolution

Major differences in approach, methodologies and patterns of contemporary evolu-tion in supply chains are evident within, across and between industrial sectors, and atthe national level. They demonstrate contrasting strategies and varying patterns ofpractice – differences that, in substantial part, are attributable to the lead companiesin chains, also referred to as: key actors (Kaplinsky, Chapter 1.3); focal firms (Harlandet al., 2004); original equipment makers (OEMs) or ‘primes’ (Amesse et al., Chap-ter 4.4). In general terms, supply chains have been perceived primarily in termsof materials flows through the various stages from processing primary materials tointermediate processing and end-manufacture and on to the delivery of finishedproducts to end-users – as in the example in Figure 1. But service products also havesupply chains and, for some types of product, data generation and processing con-stitute the counterpart of materials flows, for instance in handling applications, cases

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FROM SUPPLY CHAINS TO TOTAL PRODUCT SYSTEMS 11

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12 ED RHODES

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and claims in public services and in the financial sector. Figure 2 illustrates a furthergeneral characteristic in the downstream flow towards the final assembly of end-products. There is a progressive convergence of intermediate products (components,subsystems etc.) that derive from different sectors with distinct materials technologiesand process technologies. Such convergence from different technological domainsadds to the challenges that face attempts to co-ordinate on a chain-wide basis.1

The seventeenth- and eighteenth-century ‘commodity chains’ in Figures 1 and 2establish the long standing antecedents of some of the issues encountered in con-temporary practice. They are summarized by Hopkins and Wallerstein (1994) aschains that ‘were geographically extensive, complex, and in constant recomposition’with, in the grain flour example, a ‘constant geographical reshuffling of the links inthe chain’. Concern with ‘flows and stocks’ of materials, components and so onreflects the influence of logistics and procurement as core functions within SCM.The ‘management of physical distribution’ appears to have provided initial stepstowards SCM in the 1960s and early 1970s (Gattorna and Walters, 1996), whileHarland (Chapter 1.2) suggests that the actual term SCM dates from 1982. This shiftin terminology and associated changes in practice relate to a number of developments.

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