Supply Chain Strategies and Practices: A contingency model

Ph.D Candidate: Qi, Yinan Dept. Of Decision Sciences & Managerial Economics March 8th, 2005

Outlines
Introduction Research questions Conceptual model Literature review & hypotheses Methodology Expected Results Q&A

Introduction
Significant challenges in todays market

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

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

We need appropriate strategy to manage the operations of supply chain. Match Your Supply Chain with Your Market
Mason-Jones et al. (2000)

Contingency theory Lawrence and Lorsh (1986)

The performance of an organization depends on the appropriate fit between two or more factors

A model of Contingency theorybased strategic research

Formulation (II)

Input
Formulation (I) Implementation (IV)

Process

Output

Environmental Variables

Strategy

Organizational Variables

Performance

Formulation (III)

Source: Ginsberg & Venkatraman (1985)

External and internal factors

Business strategy
et al., 1996)

(Morash, 2001; Ward and Duray, 2000; Ward

Environmental uncertainty

(Chow et al., 1995; Narasimhan and Kim, 2002; Yusuf and Adeleye, 2002)

Product characteristics (Fisher, 1997; Huang et al, 2002;)

Strategies should be supported by practices

Impact of practices on performance

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

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

Conceptual Model

Environments

Business Strategy

Supply Chain Strategy

Practices

Performance

Product Char.

Literature Review
Porters (1980) generic strategies

Cost leadership

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

Differentiation

The unique image or value of a firms product and service

Another view of strategy?

We should view the strategic management from a new view of pursuing the commonalities among firms instead of an atomistic view. (Dess and Devis, 1984)

Bowersox et al. (1989)s typology

process strategy market strategy channel strategy

Fishers (1997) typology

efficient supply chain responsive supply chain

Morashs (2001) typology

operational excellence customer closeness.

Cigolini et al. (2004)s typology

efficient supply chain lean supply chain quick supply chain.

Yusuf et al. (2003)s typology

lean supply chain agile supply chain

Comparison between previous findings

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

Fisher (1997)

Responsive supply chain Respond quickly to uncertainty, innovative products, supplier selection based on speed & flexibility Operational excellence Minimize cost, eliminate waste, standardized products. Collaborative communications with customers, high value-added products Commodities with high volume, focused on operation, high efficiency Compete simultaneously on price, novelty, quality and customer service Fashion-driven /technology-driven products, manufacturing flexibility

Morash (2001)

Customer closeness Efficient supply chain

Cigolini et al. Lean supply chain (2004) Quick supply chain

Comparison between previous findings

Authors Findings Characteristics Commodities, predictable demand, low variety, cost reduction Fashion products, volatile demand, high variety, respond to customer Mason-Jones et al. Lean supply chain (2000) Christopher (2000) Agile supply chain Yusuf et al. (2003)

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

Conceptualization
Lean supply chain

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

Conceptualization
Agile supply chain

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

Distinguished Characteristics of leanness and agility

Distinguished attributes Lean supply
Typical products Commodities

Agile supply
Fashion goods

Marketplace demand
Product variety Product life cycle Customer drivers Profit margin Dominant cost Stockout penalties Purchasing policy Forecasting mechanism

Predictable
Low Long Cost Low Physical costs Buy materials Algorithmic

Volatile
High Short Availability High Marketability costs Assign capacity Obligatory Consultative

Long-term Contractual Immediate and volatile

Information enrichment High desirable

Source: Mason-Jones et al. (2000)

Literature review I
Business strategy & supply chain strategy
Very few literatures regarding such a topic Supply chain strategy should support firms competitive objectives

Morash (2001) Cigolini et al. (2004)

Cost leadership needs lean supply chain

Long-term and rigid relationship with suppliers Standard products to customers Low cost distribution

Differentiation needs agile supply chain

Flexibility and speed Customized goods Integration with suppliers, customers, and even competitors.

Hypothesis 1
Hypothesis 1a

The manufacturers are more likely to adopt lean supply chain strategy when they use overall cost leadership as their business strategy .
The manufacturers are more likely to adopt agile supply chain strategy when they use differentiation as their business strategy .

Hypothesis 1b

Literature review I
Environment and Strategy
Differentiation

in volatile environment and cost leadership in stable environment

(Hofer, 1986, Kim and Lim , 1988, Miller, 1988 and Ward et al. , 1996)

Agile

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

2000; Yusuf et al., 2003)

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

Dimensions of environmental uncertainty

In the research on business strategy

1984)

(Dess and Beard,

Munificence Dynamism Complexity

In the research on supply chain (Chen and Paulraj, 2004)

Demand uncertainty Supply uncertainty Technology uncertainty

Hypothesis 2
Hypothesis 2a The manufacturers are more likely to adopt the differentiation strategies (i.e. innovative differentiation, product differentiation and marketing differentiation) as the environments are more fluctuate. Hypothesis 2b The manufacturers are more likely to adopt the overall cost leadership strategy as the environments are more stable and predictable.

Hypothesis 3
Hypothesis 3a The manufacturers are more likely to adopt the lean supply chain strategy as the environments are more stable and predictable. Hypothesis 3b The manufacturers are more likely to adopt the agile supply chain strategy as the environments are more fluctuate.

Literature review II
Product characteristics and strategy

Functional products need efficient supply chain and Innovative products need responsive supply chain (Fisher, 1997) system classify product into four clusters and different kinds of products need different manufacturing structure (Childhouse et al.,
3

DWV

2002; Aitken et al., 2003)

Production-dominant need scale-efficient process and mediation-dominant need scaleinefficient process (Randall and Ulrich, 2001) Fashion goods need more agile supply chain
(Bruce et al., 2004)

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

Hypothesis 4
Hypothesis 4a The manufacturers are more likely to select lean supply chain strategy as the products are more functional. Hypothesis 4b The manufacturers are more likely to select agile supply chain strategy as the products are more fashionable.

Literature review III

Leanness vs agility Cumulative model

Ferdows and De Meyer (1990)

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

Noble (1995)

Leanness and agility

Agility depends on a range of capabilities such as TQM and JIT

Brown and Bessant (2003), Goldman et al. (1995) Christopher (2000), Kidd (1994), Robertson and Jones (1999)

Leanness may be a constituent of agility

Supply chain cost

Total Costs

Physical PDP Costs

Marketability Costs

Lean supply chain

Agile supply chain

Strategies and practices

Practice bundles Leanness Agility

JIT system
TQM Supplier integration Internal integration Customer integration Customer enrichment Organizational change AMT

OOO
OOO OOO OOO OO O O OO

OOO
OOO OOO OOO OOO OOO OOO OOO

Hypothesis 5
Hypothesis 5a The manufacturers that focus on lean supply chain strategy will have high degree of adoptions of lean practices, such as JIT, TQM, supplier integration and internal integration. Hypothesis 5b The manufacturers that focus on agile supply chain strategy will have almost equal degree of adoptions of the lean and agile practices including JIT, TQM, supplier integration, internal integration, customer integration, customer enrichment, organizational change and AMT.

Literature review IV
Practices and Performance

JIT purchasing has positive impact performance (Dong et al., 2001; Kelle and Miller, 1998)

on

JIT production system has positive impact on performance (Golhar and Stamm, 1991; Joo and Wilhelm, 1993) TQM has positive impact on performance (Flynn et
al., 1994; Ahire et al., 1996; Kaynak, 2003)

Postponement strategy has benefits to firms

and Tang, 1997; Johnson and Anderson, 2000)

(Lee

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

Dimensions of business performance

Operational performance

Cost reduction, Inventory turnover, Labor productivity etc. Pre-sale services, Product support, Dependability etc. Volume, Mix, New product flexibility

Customer service

Flexibility performance

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

Hypothesis 6
Hypothesis 6
H6a: The manufacturers can increase their operational performance through the extensive use of the lean and agile practices. H6b: The manufacturers can increase their customer service level through the extensive use of the lean and agile practices. H6c: The manufacturers can increase their flexibility through the extensive use of the agile practices.

Methodology
Mail survey Factor Analysis SEM/Regression

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

Q&A