Supply Chain Strategies and Practices: A contingency model

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Supply Chain Strategies and Practices A
contingency model

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

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Outlines

• Introduction
• Research questions
• Conceptual model
• Literature review hypotheses
• Methodology
• Expected Results
• QA

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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)

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• 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

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A model of Contingency theory-based strategic
research
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• External and internal factors
• Business strategy (Morash, 2001 Ward and Duray,
  2000 Ward et al., 1996)
• Environmental uncertainty (Chow et al., 1995
  Narasimhan and Kim, 2002 Yusuf and Adeleye,
  2002)
• Product characteristics (Fisher, 1997 Huang et
  al, 2002)
• Strategies should be supported by practices
• Impact of practices on performance

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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?

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Conceptual Model
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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)

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• 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.

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• 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

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

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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

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Distinguished Characteristics of leanness and
agility
Source Mason-Jones et al. (2000)
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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)

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• 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.

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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 .
• Hypothesis 1b
• The manufacturers are more likely to adopt agile
  supply chain strategy when they use
  differentiation as their business strategy .

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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)

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• Dimensions of environmental uncertainty
• In the research on business strategy (Dess and
  Beard, 1984)
• Munificence
• Dynamism
• Complexity
• In the research on supply chain (Chen and
  Paulraj, 2004)
• Demand uncertainty
• Supply uncertainty
• Technology uncertainty

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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.

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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.

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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., 2002 Aitken et al., 2003)

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• Production-dominant need scale-efficient process
  and mediation-dominant need scale-inefficient
  process (Randall and Ulrich, 2001)
• Fashion goods need more agile supply chain (Bruce
  et al., 2004)
• Innovative product need agile supply chain and
  standard product need lean supply chain (Huang et
  al., 2002)

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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.

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Literature review III

• Leanness vs agility Cumulative model
• Ferdows and De Meyer (1990)
• Building manufacturing capabilities in order
  quality, delivery, flexibility, and cost
• Noble (1995)
• Building manufacturing capabilities in order
  quality, dependability, delivery, cost,
  flexibility, innovation

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• Leanness and agility
• Agility depends on a range of capabilities such
  as TQM and JIT
• Brown and Bessant (2003), Goldman et al. (1995)
• Leanness may be a constituent of agility
• Christopher (2000), Kidd (1994), Robertson and
  Jones (1999)

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• Supply chain cost

Total Costs
Physical PDP Costs
Marketability Costs
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Strategies and practices
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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.

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Literature review IV

• Practices and Performance
• JIT purchasing has positive impact on performance
  (Dong et al., 2001 Kelle and Miller, 1998)
• JIT production system has positive impact on
  performance (Golhar and Stamm, 1991 Joo and
  Wilhelm, 1993)
• TQM has positive impact on performance (Flynn et
  al., 1994 Ahire et al., 1996 Kaynak, 2003)
• Postponement strategy has benefits to firms (Lee
  and Tang, 1997 Johnson and Anderson, 2000)
• Supply chain integration has positive impact on
  performance (Narasimhan and Das, 1999 Fronlich
  and Westbrook, 2001)

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• Dimensions of business performance
• Operational performance
• Cost reduction, Inventory turnover, Labor
  productivity etc.
• Customer service
• Pre-sale services, Product support, Dependability
  etc.
• Flexibility performance
• Volume, Mix, New product flexibility
• (Beamon, 1999 De Toni and Tonchia, 2001
  Gunasekaran et al., 2001)

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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.

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Methodology

• Mail survey
• Factor Analysis
• SEM/Regression

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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.

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Q A