Supply Chain Management: Providing a ‘systems’ perspective for project managers
S. Woods and J. Heathcote
Centre for Project Management, School of the Built Environment
Leedsmet University, Leeds, LS2 8AJ
J.Heathcote@leedsmet.ac.uk
Please cite as: Woods, S. and Heathcote, J. (2011) Supply Chain Management: Providing a ‘systems’ perspective for project managers, Online Journal of Project Management, Reviews, No. 6, 1st Quarter 2011
Abstract
This paper suggests that an understanding of supply chain management approaches, rather than being a complementary ‘add-on’ for students of project management might in itself provide a conceptual overview, providing both a ‘systems’ perspective and a the ‘goal’ focus that is required of successful project delivery.
Keywords – Projects; programme management; benefits; project management.
1. INTRODUCTION
Supply Chain Management (SCM) has become a topic for study for students in business environments generally, being allied to Quality Management ideas and Porter’s (1980) seminal work: “Competitive Advantage” which took a supply chain perspective, though referred to it as the ‘Value Chain’. SCM more recently becomes a topic of study for students of project management following Egan’s (XXXX) assertion that an ‘integrated supply chain’ paradigm (like Toyota) was key to curing the ills of the UK Construction Industry, (itself a contractual, short term, project approach industry, due to the nature of its market.)
Preceding Egan, Latham (XXXX) had facilitated the potential for closer team integration between contractors to a project, with the development of the NEC suite of contracts. These contacts, now often referred to as ‘process contracts’ encouraged ‘partnering’ approaches and arguably, together with Egan’s work led to greater supply chain integration in both clients and principle contractors.
Much is written about SCM and the breadth of its concern perhaps ensures that its definition will remain a little ambiguous.
In its simplest form this paper initial reduces the supply chain model to what might be its simplest model in fig. 1
Fig. 1a A simple supply chain model.
Fig. 1b A simple project model
Fig. 1c
Figures 1a, 1b, and 1c indicate the potential for parallels to be drawn between project and supply chain perspectives.
The adoption of a SCM perspective and its subsequent improvement/development, offers the potential for significant improvement in performance in the project and organisation’s development and delivery. Reciprocally, tools and techniques associated with project management con assist in the application of SCM.
2. LITERATURE REVIEW & ARGUMENT
The Institute of Supply Chain Management suggest that supply chain management (SCM) is “the design and management of seamless, value added processes across organizational boundaries to meet the real needs of the end customer” (Wisner, Tan and Leong, 2008, p.8). According to Mentzer (2001), SCM is concerned with “the systematic, strategic coordination of the traditional business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole” (Mentzer, 2001, p.2). Lambert, Cooper & Pagh (1998) define SCM as “the integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders” (Lambert, Cooper & Pagh 1998, p.1), whereas Gardiner (2005) suggests that SCM is “managing the external relationships in the supply of goods and services” and that it “integrates strategy, purchasing and quality management” (Gardiner, 2005, p.136). Handfield and Nichols (2002) propose that SCM is “the integration and management of supply chain organizations and activities through cooperative organizational relationships, effective business processes and high levels of information sharing to create high-performing value systems that provide member organizations a sustainable competitive advantage” (Handfield and Nichols, 2002, p.8 ) while Hugos (2006) defines SCM as “the coordination of production, inventory, location and transportation among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served” (Hugos, 2006, p.4). However, New (1997) argues that defining SCM is problematic as a too tight a definition can close off “productive avenues of development” whilst a too loose a definition “allows the label to collapse into an amorphous study of everything” (New, 1997, p.16).
There are several authors who have looked at the origins of SCM and have looked at its progress closely. According to Mentzer (2001), it was the work of Forrester (1958) that initially identified the need for a company or organisation to adopt the “interactions between the flows of information, materials, money, manpower and capital equipment” (Forrester, 1958, p.37) (Mentzer, 2001, p.2-3). Wisner, Tan and Leong (2008) identify roots in SCM from 1950’s America, where manufacturing companies focused more on mass production rather than building bridges with their suppliers and concentrating on quality. In the 1960’s and 70’s, the growing imprtance of managing materials became apparent as well as the increasingly sophisticated computer software that aids the reduction of costs and improving internal communications within an organisation. Wisner, Tan and Leong (2008) suggest that SCM experienced somewhat of a ‘boom’ in the 1980’s and that “intense global competition” caused manufacturers to adopt stratgegies such as Just-in-Time (JIT) and total quality management (TQM) to “improve quality, manufacturing efficiency and delivery times” (Wisner, Tan and Leong, 2008, p.12). By the 1990’s, companies varied as Tesco, Nokia and General Electric all applied the Just-In-Time (JIT) production system to their own working methods (BBC, 2010).
It is suggested that TCQ relates to everyone associated with the company or organisation in the search for continuous improvement, from fully committed executives to fully meeting the expressed requirements of the customer (Ho, 1999, p.30). Other definitions of quality are suggested as being “the totality of features and characteristics of a product or service that bears on its ability to meet a stated or implied need” (ISO, 1994), “fitness for use” (Juran, 1988) and “conformance to requirement” (Crosby, 1979). Satisfying the customers’ needs is a constant theme within these definitions and as such, meeting their requirements is of paramount importance and that companies should address a customers wants/needs (Ho, 1999, p31).
The Just-In-Time (JIT) system, according to Ho (1999), derived from difficulties in setting up business after the war whereby resources need to be utilised in a more efficient way. “In the JIT system, all capital, manpower and production facilities are carefully planned and effectively used in order to ‘eliminate wastage fully’” (Ho, 1999, p.21). Also termed as ‘lean production’ or the ‘Toyota Production System’, the implementation of this process often results in increased quality, lower levels of inventory and faster delivery (Wisner, Tan and Leong, 2008, p.19). An example of utilising this process to good effect is Dell Inc, whose business model involves selling products directly to the consumer where they are able to customise their own computer. Dell manages its supply chain in a way that minimises its ‘cost structure’, which involves “the costs of holding inventory yet with the ability to build a computer to individual customer specifications within three days” (Hill and Jones, 2004, p. 2). In 2001, 85% of Dell’s orders were made online, whilst the internet is also utilised to issue real-time information about order-flow to its suppliers meaning they are constantly kept up-to-date with demand and volume expectations for the next four to twelve weeks. The suppliers can then use this data to modify their own production schedules, manufacturing and distribution processes so that Dell receive the components just in time for production. This way of working is then passed down the chain to Dell’s supplier’s suppliers, resulting in lower costs along the supply chain. Dell’s strategy means that it has about five days of inventory in hand compared to up ninety days at some of its competitors, giving a major competitive advantage (Hill and Jones, 2004, p. 2).
Ho (1999) focused on the importance of quality to Japanese strategy and how it has become their key mission and strategic option. Ho (1999) states that “when it comes to strategic implementation, quality has become a routine” and that the relationship between TQM and corporate strategy “adds totality to quality, as it is communicated throughout the organisation and spanned over its long term plan” (Ho, 1999, p.33). It is argued that functional (or operational) strategies are “the short-term goal-directed decisions and actions of the organization’s various functional departments” (Coulter, 2002, p.10).
According to Porter (1985), “competitive strategy is the search for a favourable competitive position in an industry” and that it aims to become both profitable and sustainable against the forces in which drive industry (Porter, 1985, p. 1). Porter (1985) also points out the “attractiveness of industries for long term profitability and the factors that determine it” as the two key factors behind choosing a strategy (Porter, 1985, p. 1). Competitive strategy “not only responds to the environment but also attempts to shape that environment in a firms favour”, meaning that a company’s choice of strategy can ‘make or break’ its position in industry (Porter, 1985, p. 2). Porter (1985) identifies ‘five competitive forces that determine industry profitability’, which are listed as; new competitors, the threat of substitute products/services, buyer and supplier power and the existing competitive rivalry. This is known as ‘Porter’s Five Forces Model’ and is shown in Figure 1:
Figure 1
(Adapted from: http://tutor2u.net/business/images/five_forces.gif)
These five forces have the potential to influence prices, costs and return on investment. Buyer power and the threat of substitution both influence what a company can charge, whilst buyer power can also influence cost and investment as powerful buyers demand costly service. The bargaining power of the supplier establishes the costs of inputs such as raw materials, whilst the level of rivalry has an effect on the prices and costs of competing in the fields of product development and advertising (Porter, 1985, p. 5). Porter (1985) also proposes that there are two distinct types of competitive advantage, being low-cost and differentiation. A strategy of differentiation would relate to a company looking to be unique within its industry in relation to the needs/wants of a customer (Porter, 1985, p.14).
Competitive advantage derives from many activities within a company, such as designing, producing, marketing, delivering and product support and each of these actions can contribute to a company’s relative cost position. A cost advantage may stem from a low-cost distribution system, efficient assembly process or a strong sales service; activities such as these and their interaction with one another make up the ‘value chain’. According to Porter (1985), “the value chain disaggregates a firm into its strategically relevant activities in order to understand the behaviour of costs and the existing and potential sources of differentiation” (Porter, 1985, p. 33). A competitive advantage is gained by a company performing these strategically important activities at a lower cost or higher standard to its rivals (Porter, 1985, p. 34). Each company or organisation is an amalgamation of activities that are executed to design, produce, market, deliver and support a particular product. A company’s value chain and how it carries out individual activities is a reflection of its heritage, strategy, its approach to strategic implementation and the “underlying economics of the activities themselves” (Porter, 1985, p. 36). Porter (1985) defines value as “the amount buyers are willing to pay for what a firm provides them” and that it is “measured by total revenue, a reflection of the price a firm’s product commands and the units it can sell” (Porter, 1985, p. 38). Porter’s Value Chain is represented in the diagram in Figure 2 belo
Figure 2
(Adapted from: http://www.emeraldinsight.com/fig/0750140102001.png)
Analysing the above diagram, Bowman (1990) states that there are two distinct types of value chain activity, being ‘primary activities’ and ‘support activities’. Primary activities involve the “physical creation of the product or service, its transfer to the buyer and any after-sales service”:
Inbound logistics
Activities involving the receiving, storing and distribution of inputs.
Operations activities involve the transformation of inputs into the final product. According to Ho (1999), operations are “transformations aiming at the creation of wealth and satisfaction” and that “materials, components, information and customers enter the process and as transformed by mechanisms of the process into an output” (Ho, 1999, p.1).
Outbound logistics
The collection, storing and distribution of the product
Marketing and sales
Activities involving providing a process to entice potential buyers and
where buyers can purchase the product. According to Heathcote (2010),
marketing is “the strategic alignment of your business with the customer
needs/wants” (Heathcote, 2010, Unpublished). In the article, ‘Marketing
Myopia’, Levitt (1975) pointed out that “the railroads did not stop
growing because the need for passenger transport declined. That grew.
The railroads are in trouble today not because the need was filled by
others (cars, trucks, airplanes, even telephones) but because it was not
filled by the railroads themselves. They let others take customers away
from them because they assumed themselves to be in the railroad
industry rather than in the transportation business”. In summary, “they
were product orientated instead of customer orientated” (Levitt, 1975,
p.2). It was suggested to continue a company’s growth, companies and
organisations need to understand and act on their customers’ needs/wants
and not to rely on the “presumptive longevity of their products”
(Levitt, 1975, p.2).
An example of the application of strategic marketing was Toyota’s development of the ‘4 Wheel Drive Truck’ in 1979. Having experienced growing resentment from the US (for its continuing dominance in the market), Toyota knew it had to project an all-American image. Peter Brown, publisher of ‘Automotive News’ claimed that Toyota “studied consumers almost like animals in a zoo” before marketing their product as ‘the toughest vehicle money can buy’ (BBC, 2010).
Service
The providing of a service to maintain or enhance the product’s value (Bowman, 1990, p. 63).
Similarly to primary activities, support activities can be devisable into a number of distinct value activities that are industry specific (Porter, 1985, p. 40):
Procurement
Involved in the purchasing of inputs, procurement includes dealing with suppliers and spans across the whole organisation.
Technology Development
This includes procedures, systems and expertise as well as machinery and processes
Human Resource Management
Activities such as staff recruitment, training, development and
remuneration are carried out by a human resources (HR) department.
Firm Infrastructure
This involves general management, finance and planning, estate
management and quality assurance activities. A firm’s infrastructure
supports the entire value chain and has the potential to have both a
positive or negative effect on competitive advantage i.e. a strong
managerial information system will help control cost closely, whereas
the structure of a department may be too inflexible, which could inhibit
innovation and hamper communication (Bowman, 1990, p. 64).
Toyota were famous for focusing on achieving quality, reliability and technological improvement. For decades, Toyota tried to avoid any faults in its manufacturing process by working hand in hand with long-term suppliers. Professor Noriko Hama from Doshisha University suggested that Toyota was ‘vertically integrated’ and that it possessed an organic, family-like structure. However, as Toyota expanded, relationships with the suppliers changed. Rather than remaining focused on delivering the highest quality, Professor David Bailey from Coventry University suggested that Toyota adopted different competitive strategies and attempted to reduce costs of key car parts by 30%, which was very risky. According to Peter Brown, Toyota got “big company disease” in changing its strategy in attempting to become the world’s top car manufacturer. To hit their targets, Toyota increased production by 50% in 5 years and became reliant on a long chain of specialist companies to supply components. Toyota replaced General Motors as the world’s top car manufacturer in 2007 but the pressure of doing so put quality under strain. As a result, Toyota’s reputation for quality has been tarnished in recent times with problems (such as Sudden Unintended Acceleration (SUA)) which have even resulted in deaths. Toyota is now focussing on new strategies for quality control and rebuilding its reputation (BBC, 2010).
3. CONCLUSION
Having considered numerous suggestions from various authors on how SCM can be accurately defined, it is apparent that the subject area is as broad as it is vital to business operations. However, one would propose that supply chain management refers to: “The strategic processes utilised in the amalgamation of differing levels of the supply chain in order to achieve a competitive advantage over a company’s rivals”.
In reference to managing projects, supply chain management emphasises a ‘systems’ approach, and that the main emphasis is on ‘integration’ of the otherwise separated processes, processes that are separated by the specialisation into departments by the typical modernist organisational approach. Project work is regarded (Gardiner 2005, Hamilton 2001) as a ‘systems’ based approach to work. The potential for insight then may arise from the comparison of the two approaches.
4. REFERENCES
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Hamilton, A (2001) Managing Projects for Success, A Trilogy. London, Thomas Telford Publishing.
Handfield R. B. & Nichols Jr., E.L. (2002) Supply Chain Redesign: Transforming Supply Chains into Integrated Value Systems Financial Times Prentice Hall, NJ
Heathcote (2010) Unpublished
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