Is Supply Chain Management an Organizational Function or a Philosophy?

By: Vera Ndrecaj

BA (Hons). MBA.

Introduction:

This paper aims to establish whether supply chain management (SCM) is organisational philosophy or organizational function. The study will concentrate on literature review by exploring definitions of the SCM that offering variety of views that  enable the author to ought a better understanding of the concept as a whole and identify different characteristics of each concepts. It also helps to distinguish between two views; SCM as an organisational function, and SCM as an organisational philosophy. Specially, this study will provide a conceptual framework and give the perspective for the practical study of SCM by exploring different theories related to SCM by employing organisational theories such as ‘Resource- Based View’ (Penros, 1959; Wernerfelt, 1984) ‘Knowledge based view’ (Grant, 1996), Core Competencies (Prahlad and Hamel, 1990), ‘Strategic Chose Theory’, ‘Value Chain, ‘Just-in Time’, Collaboration and Relationship (Richey and Autry, 2009), and also  ‘Agile Manufacturing’ (Halldorsson et al., 2003; Ketchen and Hult, 2006; Lavassani et al., 2009).  Hunt’s (1991) described theories as a systematic structure capable of explain and predict phenomena. 

The idea of SCM often attributed to Drucker (1962) referring to  distribution as one of the key areas of the business in context of efficiency and cost savings.  The next two decades supply chain (SC) was still as a series of different function (Fernier and Sparks, 2009). Physical distribution or logistics deserves more attention because it is a neglected business function, (Bowersox, 1969) suggested that, systemic and holistic views to analyse physical distribution, and focus in relationships and collaboration in order to eliminate duplications of activities and minimise costs. Schnedlitz, (1970) has developed the concept of “Betriebswirtschaftliche Logistic” and also defined logistics as integrated management of the flow of goods and information (Kotzab, 2005). But, Von Bertalanffy, (1972) argued that, the concept of SCM begins with inventory management focus, cost control, and operations planning, industrial dynamics  (Cooper et al., 1997a), with channels and logistics research (Tan, 2001) in the 90’s incorporated, purchasing, financial, manufacturing, and orders (ibid).  However, in the last two decades the SC was still viewed as a series of disparate function (Fernie and Sparks, 2009). The functions began to integrate and considered as a SC rather than separate activities. As a result various themes emerged, such; i) shift from a push to a pull, ii) customers gained more power to marketing channels, iii) the role of information system was enhanced, iv)  the removal of unnecessary inventory , v)  focusing on core competencies,  and vi) enhance outsourcing of non-core activities to specialists. 

SCM is introduced as a management tool to gain competitive advantage  (Jones and Riley, 1985).  This development was described by (Oliver and Webber, 1982) as a new form of strategic management. However, the fundamental assumptions which SCM rest are significantly older and include systems approach (Konrad, 2005). Since then, various developments have appeared in this field, but still is no agreement of what SC or SCM are (Kotzab, 2005).  However, the integration of this concept commenced in 1960 when the Electronic Data Interchanged (EDI) system was introduced. But also, in 1990 were further developments in this field such as introduction of other system called Enterprise Resource Planning (ERP) system, and also collaborative system was developed as a result of Internet based expansion.

A diversity of explanation has since appeared for a SCM, because it can be observed from different point of view (Overbeck, 2002). The concept can be seen as an operational process (Slack 2006) but scientific community seen the concept as a management philosophy (Eliram & Cooper, 1997; Mentzer, 2001; Tan, et al, 1998; La Londe and Masters, 1994) linked it to organisational culture in order to enhance competitive advantage (Tan et al., 1998). However, Wailgun (2008) explained that, SCM is a combination of art and science, that goes into improving the way the company find the raw components needs to make products or services and deliver it to customers, and there is not explicit description of its specific activities and practises and how it impact organisation performance. Overbeck (2008) argued that, SCM is not developed in theory but derived from practise. However, Wolf (2008) claimed that, SCM is a separate discipline in business and management. McGuffey, (2000) explained, SCM helps to maximized profit,  added value network,  and reducing total cost across the entire trading process through focusing on speed and certainty of response to the market.  In this context, the key concepts of SCM include; value chain, resource based theory, transaction cost economics and network theory. The purpose of these theories is to achieve competitive advantage through SCM. For instance in retail value can be added to the product through manufacturing, branding, packaging, and display at the store (Fernie and Sparks (2008). But at the same time all this processes added cost in term of product development and innovation, branding and logistics,therefore, the aim of retailers would be to manage the chain effectively in order to create value for the customer at an acceptable costs. This management process is called ‘pipeline’ and it has been challenging for logistics professional (ibid).  SCM or known as purchasing and logistic management have become an integrated strategic approach especially for companies determine to improve their performance in term of quality of products or services, customer satisfaction, and competitive advantages (Tan et al., 2002).  

Alternatively, Slack et al., (2006) described that, SCM is management of relationships and flows between operations and process; the topic that integrates all the issues concerning the delivery of products or services, he describe SCM as a business function. But on the other hand, Thornton (2008) argued that, SCM is a management of business’ networks, it is a management philosophy responsible for the total flow of a distribution channel from a supplier to the end (Cooper and Ellram, 1993) it is important for organisational success. The focus of SCM is on processes, technology, and capability to enhance competitive advantage (Tan et al., 1999). However, in Germany researchers argued that SCM is another world for logistics (Kotzab, 2005). Albach, 1997) has supported the view of German researchers by recognising logistics as the discipline that can contribute to based theories of organisation. However, the importance of logistics  (see figure 4. appendix) and supply management is enhanced due to external and internal factors (Meade and Sarkis, 1998). Bowersox (1990); LaLonde and Mason (1993); and Daudgerty and Pittman (1995) have identified following external factors; strategic alliance, technological change, cycle time compression, and high competitive environment. But, LaLonde and Mason (1993) have acknowledged changes for following internal factors, which can restrict involvement of logistics and supply management; implementation of decision support system, information system, spanning logistics to improve traditional functional areas, and increase performance expectation (Meade and Sarkis, 1998).     

However, several definitions have since emerged for SCM each with their own views and possible meaning.  Mentzer, (2001) defined SCM “…as a systemic, strategic coordination of the traditional business function and the tactics across these business functions within a particular company and the cross within the supply chain, for the purpose of improving the long –term performance of the individual companies and the supply chain as a whole” (2001:18). This definition does not restrict SCM to certain function or activities and consider both organisation internal and external processes (Wolf, 2008). Academics described SCM as a strategic integrated customer and cooperation management philosophy that amplify performance sustainability for all collaborators within organisational actions described as a supply chain (Kotzab, 2005).  Ayers and Odergaard (2008) have seen SCM as a design, maintenance and operation of SC processes, extended products, for satisfaction of customers. Cooper and Ellram (1993), Cooper et al., (1997); Steven et al., (1990) defined SCM as the philosophical integration between all key businesses processes across the supply chain. In opposite to their views, The Council of SCM  (COSCM) described SCM as an integrated function with primary responsibility for linking major business function.  Despite the different views of writers, (Mouritsen et al., 2003; Mentzer et al., 2005) suggested that, the process of definition development in SCM has not yet arrived at an end, there is not consensus on what SCM in fact is.   Therefore it appears that SCM is complex management concept (Persson, 1997), otherwise SCM is like “…a bottle of Coke, it is there and we have to accept it and make the best out of it” (Bretzke, 2005 cited by Kotzab, 2005).  In opposite with philosophical viewers, the Council of Supply Chain Management Professionals (COSCNP, 2004) have defined SCM as a organisational function which integrate the management of supply and demand within and across of organisation, they described it as a “…planning and management of all activities involved in sourcing and procurement, conversion and all logistics management activities” (www.coscnp.com). 

Despite the various, Tan, et al, (1998); LaLonde and Masters, (1994) highlighted some keywords used significantly in literature to describe this concept as a philosophy; supplier integration and alliance, supply based management and synchronisation, partnerships. The opportunities and obstacles created by globalisation (Beth, 2003) are requiring companies to establish relationship with different type of suppliers (Burt, 1998). The pressure for speed and cost control is making it even more essential to break down barriers and establish effective cross – functional relationship (Copacino, 2004). Leading SC performance required new technology, new innovation and new way of thinking, and the most important factor to maximise effectiveness of SC is integration of all activities within a single system (Fernie and Sparks, 2009). Figure 2 shows the integrating and management of organisation process across the SC.

Confusion can occur at times as the term SCM often used the same with the term SC, it is very important to distinguish between two concepts because it could lead to inefficiency of the organisation Mason-Jones, (2010). According to Chopia and Meindl (2001) SC consists of all direct and indirect stages of responding to customers’ demand, it is connected different business activities, which include; planning, coordinating and controlling materials, parts and finished products or services from row material to finished goods, materials and information are main concern (Stevens, 1989). Alternatively, Handfield and Nichols (1999) described SC as a sum of all business activities associated with the flow and alteration of goods from raw materials through end products, and also associated information flow. However, Kuhn (1970) describe it a normal science. Cooper et al., (1997) explained the focus of SC and how it has moved from static or mechanistic to adaptive and responsive SC strategy that leads to effective risk management and cope with change and uncertainty in market. It is becoming part of organisation culture and key component in strategy.  But, Kotzab (2005) describes SC as a reproduction of networks, including; the network of innovation, connection, multiplication, and the transformation (Otto, 2002). But Mouritsen et al (2003) argued that, SC might be social construct, which exist only into management perception rather than reality, physicists and philosophers have supported this, they raising the question ‘have we ever seen a SC or it is something reminds in our perception’ (Mach, 1989).

Alternatively, SCM is a different approach from other channel relationship. Cooper and Ellram (1993) have put forward some characteristics distinguished this approach from others; the approach of inventory management, the approach of total cost, time prospect, common sharing and information management, coordination of different levels in the channel, planning, capability of corporate philosophy, breadth of supply based and channel leadership, risk an rewards and the speed of physical and information flow. However, Gibson et al., (2005) discover that, SCM is a mixture of strategies and activities of the organisation that have to do with suppliers and customer collaboration. It is placed between economics, organisation and technology (Gudehus, 2005).  However, Christopher and Peck (2003) have stress the importance of time – based competition management because it is responsible for market changes. For instance; is crucial for companies to speed-up and bringing opportunities to market faster than their competitors, to speed-up in order to meet customers’ order, and the adjusting outputs to enable them to respond in demand (ibid). Lee (2003) argues that, speed is important but adaptability and capability of organisation is more crucial especially now in high competitive and rapid change environment, companies which are capable to manage their SC deliver their products on time are likely to be in market for long time.

However, the priorities of SCM are change recently because of the economic downturn and the plunge into overcapacity, and also, terrorism and war. To achieve maximum effectiveness of SC, integration of previous separated activities with a single system, and internal changes are required (Fernie and Sparks, 2009). SC integration can be achieved by establishing ongoing relationships with trading partners throughout the SC (ibid). To create effective partnership between companies is crucial but it is very difficult (Kirby, 2008). Trust is the bases of agility, of flexibility, yet it is challenging to establish trust and even harder to maintain it. Despite challenges it is competitive advantage because enable managers to make a fast decision and be more innovative (Burt, 2000). According to Ross (1998) the philosophy of SCM is to seek for harmonisation and convergence in both operations internal and external and also for capable strategies in order to enforce marketplace force.

Kirby (2004) raised concerns about cost reduction. Copacino, (2000) explaned that, the  key issue is managing the supply based, including; sources, supplier integration, and in-bound parts management, and also is a shift in focus from planning to execution, and manufacturing execution system (MES) warehouse management system (WMS). There are huge opportunities on the planning side in matching supply and demand. But, Beth (1998) concerned about misalignment of technologies and product life cycle. However, Lee (1995) argued that, cost, speed, and flexibility are important but the most important factor to be successful in the long-run are the ability of organisation to manage changes in market conditions, evolving technology, and different requirements as a product move through its life cycle. In this context, successful companies such as Zara has been able to crab market shares and sales out of crisis, which often required them to work across functional boundaries. Companies like that have what is called a triple-A of SC; therefore, they have agility, adaptability and alignment. Nevertheless, Kotzab (2005) highlighted three important drive forces for trans-national corporation; economic perspectives, environmental quality and social justice  (Figure   Appendix) effecting sustainable development of SCM. The triple bottom line at the SC, Elkington (1997) declared that,  “will increasingly be forced to pass the pressure on their supply chains…” (1995:2).             

The concept of SCM has become more complex as a result of globalisation (Morris, 1999) that has created a big shift in demand as a result of customer base change. China, Brazil, India as a emerging economise and growing markets in Russia driven different type of SC requirement (ibid). Let pretend that, the company that are building and shipping PCs in emerging markets are small resellers, small distributors, and not a typical multinational corporate.  In this context, could be shift market shares, SC by changing partners, and supply and demand, therefore, business environment become more complex. As a result of the complexity SCM become more important, because it deals efficiently with unpredictable environment Mentzer (2001). Lee (1999) suggested three components of SC agility, adaptability, and aligned in order to enable SC to respond effectively to environment changes. Agility is important because, demand and supply change rapidly and widely. SC survives by speeding against cost, but agile SC responds quickly and cost efficiently (ibid).  On the other hand, Womack and Jones (2005) developed the concept of ‘lean solution’ which was kind of evolution in retail industry because puts retailing in sensitivity changes. The ‘lean’ concept was developed from Japanese as a continual process of improvement in their products (innovation) ‘agility’ concept was developed in the US as a response to  ‘lean products’ (Fernie and Sparks, (2008). ‘Agility’ plays huge role in USA in entrepreneurship and information technology, because strengths responsiveness to market demand. While, Harrison et al., (2002) argued that, the improvement in information technology means less reliance on forecasting and create effective SC between trading partners. Although, Aldridge and Harrison (2000) identified network as an important element of agile SC, which influence structures of partners, coordinates and manages relationship to meet customers needs. Naylor et al., (1999); Mason-Jones et al., (2000); Towill and Christopher (2002) suggested that, supply systems can be a combination of both approaches ‘lean’ and ‘agility’, but must be used when is appropriate.          

However, building sustainable SCM is not enough to have collaboration between supply chain members with all business activities, but also is necessarily to be ware of issues. For instance; lack of information could lead to conflicting goals between silos; purchasing, manufacturing, distribution, and customer service, this can create disequilibrium between networks and supply and demand, because players are unable to coordinate their decision.  “The Beer Game” MacNeil and Hour (1989) can be a useful tool for operational management to coordinate between different levels of organisation internally, but also externally in all activities in order to meet the equilibrium between supply and demand (Sterman, 2001).   

A diversity of explanation has since appeared for a SCM, because it can be observed from different point of view (Overbeck, 2002). The concept can be seen as operational process (Slack 2006) but scientific community seen the concept as a management philosophy (Eliram & Cooper, 1997; Mentzer, 2001; Tan, et al, 1998; La Londe and Masters, 1994) linked it to organisational culture in order to enhance competitive advantage (Tan et al., 1998). However, Wailgun (2008) explained that, SCM is a combination of art and science, that goes into improving the way the company find the raw components needs to make products or services and deliver it to customers, and there is not explicit description of its specific activities and practises and how it impact organisation performance. Overbeck (2008) argued that, SCM is not developed in theory but derived from practise. However, Wolf (2008) claimed that, SCM is a separate discipline in business and management. McGuffey, (2000) explained that, SCM maximised added value network and reducing total cost across the entire trading process through focussing on speed and certainty of response to the market.  In this context, the key concepts of SCM include; value chain, resource based theory, transaction cost economics and network theory. The purpose of these theories is to achieve competitive advantage through SCM. This is a new concept and it may sometime be a confusing subject. Is an ongoing debate if it is philosophy or organizational function. But, is clear that,  it has started as a business function identified with physical distribution and it has become a very important element of competitive advantage.  

Reference:

Bobler. D, Burt. D, Purchasing and Supply Chain Management, Text and Cases, McGraw Hill, New York.

Bowersox, D (1969) Physical Distribution, Development, Current Status, and Potential, Journal of Marketing, Vol. 33, No. 1, pp. 63-70

Cox, A &Hines, P (Eds), Advanced Supply Management: The Best Practice Debates, Earlsgate Press, Boston, Line.

Christopher, M. (1999) The magic of the supply chain’s agility, Available from: http://www.tzw.biz/www/home/article.php?p_id=491 [accessed 05-November 2010]

Cooper et al., (1997) Supply chain management – more than new name for logistics, International journal of logistics management, Vol. 8, No. 1, pp 1-14

Cooper. C & Ellram. M. L (1993) Characteristics of Supply Chain Management and The implications of Purchasing and Logistics Strategy, The international journal of logistics management, Vol. 4, No. 2, pp 1-24

Drucker, P. (1962) The Economy’s Dark Continent, Fortune, Vol. 4, No 103. Pp. 265-270

Domberger, S.  The Contracting Organisation: A strategic guide to outsourcing. Oxford.

Elkington, W. (1997) Cannibals with forks. The triple bottom line of 21^st century business. Capstone. Oxford

Frazier, G (1999) Organising and Managing Channels of Distribution, Journal of the Academy of Marketing Science, Vol. 27, No. 2, pp 226-240

Gibson et al., (2005) Supply Chain Management: Pursuit of a consensus definition. Journal of Logistics, Vol. 26, No. 2, pp. 17-25

Handfield, R & Nichols, E (1999) Introduction to Supply Chain Management. Prentice Hall. Upper Saddle River.

Kotzab, H & Schmaltz, P (1999) The Integration of Retail to the General Concept of Supply Chain Management, Journal fur Betriebswirtschaft, Vol. 49, No. 2, pp140-153

Kotzab, H & Teller. C (2003) Value-adding partnership and cooperation models in the grocery industry, International Journal of Physical Distribution and Logistics Management, Vol. 33, No. 3, pp. 268-281

Kotzab, H & Otto, A (2004) General process oriented management principle to manage supply chains. Theoretical identification and discussion, Business Proccess Management Journal, Vol. 10, No. 3, pp. 336-349

Kotzab. H (2005) Supply Chain Management-Development, Current Status, and Potential for Academia and Business Practice. Available from: http://fronpage.cbc.dk/insignts/690013.hntmi [accessed 10 December 2010]

Kotzab, H & Bjerre, M (2005) Retailing in a  perspective. CBS Press, Copenhagen

Kuhn, T. (1970) The Structure of Scientific Revolution. 2^nd ed. University of Chicago Press

Mentzer et al., (2001) Defining Supply Chain Management, Journal of Business Logistics, Vol. 22, No. 2, pp1-24

Mentzer, H ( 2003) Supply Chain Management. Available from: http://books.google.co.uk/books?id=Y60qVumXKEwC&printsec=frontcover&dq=definition+of+supply+chain+management&hl=en&ei=KggQTeXAGsmFhQfkzKG3Dg&sa=X&oi=book_result&ct=result&resnum=1&ved=0CDIQ6AEwAA#v=onepage&q=definition%20of%20supply%20chain%20management&f=false [accessed, 20/12/2010]

Mouritsen et al., (2003) Exploring the Countors of Supply Chain Management, Integrated Manufacturing Systems, Vol. 14, No. 8, pp. 686-695

Saunders. M, Strategic Purchasing and Supply Chain Management, Pitman, ISBN 0415102359.

Slack et al., (2008), Operations and Process Management: Principles and Practice for Strategic Impact, 2^nd ed, Prentice Hall, London.

Stern et al., (1996) Marketing Channels. 5^th ed. Upper Saddle River, New Jersey

Velde. J. N and Meijer. R. B system approaches to Supply chain design with multinational for colorant and coating. Available from: http://www.ifm.eng.cam.ac.uk/mcn/pdf_files/part6_5.pdf [accessed, 22/12/2010]

Wassermann. O, (2001), The Intelligent Organisation: winning the global competition with supply, Springer-Verlag Berlin Heidelberg, Germany.  [available], http://books.google.com/books?id=QQo5xwsVb_IC&pg=PA92&dq=is+supply+chain+management+an+organisation+function+or+philosophy&hl=en&ei=PwSrTK76OZCSOtvZnZwH&sa=X&oi=book_result&ct=result&resnum=3&ved=0CD8Q6AEwAg#v=onepage&q&f=false.

Lamb et al., (2008), Marketing, Nelson education Ltd, Canada. [available], http://books.google.com/books?id=op9zkXLpwvUC&pg=PT433&dq=is+supply+chain+management+an+organisation+function+or+philosophy&hl=en&ei=8gmrTN-OMonrOeHklPEG&sa=X&oi=book_result&ct=book-thumbnail&resnum=2&ved=0CD0Q6wEwAQ#v=onepage&q&f=false. [See page 412]

Tan et al,. (2002) Supply chain management: a strategic perspective, Journal of Operations & Production Management, 22:6, pp614-631.

Thornton. SH,  (2008) Supply Chain Definition. Available from:http://www.ehow.com/facts_5194730_supply-chain-management-definition.html [accessed, 12/11/2010]

Supply Chain Philosophy & Function. Available from: http://www.exforsys.com/tutorials/supply-chain/scm-philosophy-functions.html [accessed, 22/12.2010]