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Communications of the ACM
Technology For Supporting Supply Chain Management: Introduction
Supplying value to the consumer, that is, goods and services, is the essence of business. A supply chain is a network of organizations and their associated activities that work together, usually in a sequential manner, to produce value for the consumer. Customer-facing firms at the retail level, whether large department stores, automobile dealerships, or fast-food franchises, are only the tip of the iceberg. Behind them exist entire networks of manufacturers and distributors, transportation and logistics firms, banks, insurance companies, brokers, warehouses and freight-forwarders, all directly or indirectly attempting to make sure the right goods and services are available at the right price, where and when the customers want them.
Having delivered the goods or services, the chain does not terminate. At the front end, through delivery, installation, customer education, help desks, maintenance, and repair, the goods or services are made useful to the customer. At the end of the product life, reverse logistics ensures that used and discarded products are disassembled, brought back, and where possible, recycled and sent back into the supply network. The scope of the supply chain, thus, extends from "dirt to dirt," from the upstream sources of supply, down to the point of consumption, and finally retirement and recycling.
Conventional strategic thinking has focused on individual firms as the competitive unit in any industry. For example, supermarkets compete against supermarkets, automobile dealers compete against automobile dealers, and buggy whip manufacturers compete against other buggy whip manufacturers. In these scenarios, enterprise-focused systems such as enterprise resource planning (ERP) systems, executive information systems, and decision support systems, become key to achieving cost efficiencies and organizational effectiveness through intraorganizational process integration [3]. Moreover, from an enterprise-centric perspective, applications such as customer relationship management systems (CRM) and supplier management systems are considered extensions of the enterprise systems, or parts of the extended enterprise resource planning (EERP) systems.
While firms still continue to compete individually, the example of the buggy whip manufacturer clearly shows that when an entire supply chain of buggies, buggy whips, stables, and roadside carriage-hostelries loses its competitive battle against the supply chain arranged around the automobile, the buggy whip manufacturer, however efficient in producing products of fine quality, inevitably rides into oblivion. Consequently, the competitive success of a firm is no longer a function of its individual effortsit depends, to a great extent, on how well the entire supply chain, as compared to competing supply chains, is able to deliver value to the ultimate consumers [1].
Supply chains have existed ever since business has been organized to bring products and services to customers. The silk route between China, India, and West Asia; the flourishing sea-trade links between ancient Indochina and South India; and the English and the Dutch East India companies are but a few examples of global supply chains. The notion of competitive advantage of supply chains, however, and consequently supply chain management (SCM) is a relatively recent idea1 in management literature [1]. Three factors have contributed to the necessity for managing the supply chain. On the demand side, an increasingly cost- and value-conscious customer is demanding more, varied, often individualized value from the supply chain. On the supply side, the availability of modern information and communication technologies (ICT) makes it possible to obtain an overview of the entire supply chain and to redesign and manage it in order to meet this demand. Finally, on both the demand and supply side, the emergence of global markets and global sourcing have stretched these supply chains over intercontinental distances. The accumulated demand variety, uncertainty, costs, distances, and time lags on a global scale make it even more imperative that these long chains be managed efficiently and effectively. Consequently the focus shifted from the competitive advantage of firms to competitive advantages of entire supply chains.
Competitive advantage arises from a combination of cost advantage and value advantage [1]. Cost advantage is a function of the overall productivity of the supply chain. The supply chain that delivers product or service value at less cost compared to its competing chains will have a cost advantage. The notion of value-advantage and customer value has evolved over time. While at one time Ford could get away with delivering any car as long as it was black and a GM customer had to wait for delivery of a car, now customers demand an individualized, well-designed and well-manufactured, reliable automobile, delivered at a location near them, almost right after they make their buying decision.2 Moreover, customer tastes and demands shift regularly. The modern supply chain has to respond to a greater uncertainty of demand and variety, higher product quality, and much shorter response times or cycle times at the least possible cost. Innovative use of ICT can dramatically change the cost and value equation for a supply chain.
Early efforts to support SCM through ICT have centered around the management of demand uncertainty through inventory demand forecasting and reduction of inventory and transportation costs and/or cycle times through optimization techniques. Generally described under the umbrella term "advanced planning systems" (APS), these applications provide decision support by using operational data to analyze and optimize the flows through the supply chain. Techniques deployed in APS include forecasting and time series analysis, optimization techniques (linear programming, mixed integer programming, location-allocation techniques, and genetic and rule-based algorithms), and scenario planning (what-if analysis and simulations). Increased computing power has enabled the use of these sophisticated optimization algorithms in complex real-life supply chain situations. APS systems represent a quantitative model-driven perspective on the use of information and communication technology in supporting supply chain management.
Standard software packages based upon these model-based algorithms began appearing in the market at the beginning of the last decade. At present, APS packages such as i2, manugistics, CAPS logistics, and SCM components of ERP systems such as SAP and Baan are making major market inroads. A recent survey of APS packages [2] describes the current state of the art and future directions for APS systems; the figure appearing here summarizes the functional scope of the current generation of advanced planning systems.
Emerging Requirements for Supporting Supply Chains: Tales from the Field
Advanced planning systems rely on historical demand data to forecast and manage future demand. However, in the currently emerging scenarios with constant product innovations, short product cycles, highly volatile global demand, and product and service customization based on a variety of regularly changing and evolving local customer preferences, there is minimal demand history to be utilized. Moreover, typical supply chain optimization works best in a fairly static supply chain with either a relatively stable set of supply chain partners or a vertically integrated supply chain. First, a static supply chain has a stable chain structure that can be modeled and optimized. Next, implementing and/or enforcing optimization decisions requires a central authority that brings different members of the supply chain in line with the decision. In a stable or vertically integrated scenario, it is possible for a "lord of the chain" or supply chain coordinator to emerge. However, in the current environment of dynamic demand-driven supply networks temporary supply chains regularly emerge, operate for the lifespan of the market opportunity, and then dissolve again. In such dynamic situations the coordination of partners and the speed of execution is usually more important than the optimization of the supply chain.
Additionally, the organization and design of the supply chain has traditionally been a product of historical accident, constrained by geographical proximity and availability of supply chain actors or partners, existing relationships and power structures, limited information processing ability, and relatively limited communication and coordination paths [1]. On the other hand, the advent of modern ICT makes it possible to search for and contract with partners worldwide, to switch partners according to the needs defined by the market opportunity [4], and to develop and implement a variety of flexible supply chain design options that can create significant cost and value advantages [1]. Thus, in contrast to the model-based ICT support for SCM inherent in advanced planning systems, emerging business phenomenonexperiences in the fieldare likely to drive the next generation of ICT-based supply chain applications.
This special section examines the emerging role of ICT in the management of supply chains. It does so by reporting upon some recent experiences from the fieldtales illustrating the changing requirements of SCM and the need for a new level of technology for support.
The first contribution to the section comes from military logistics. This is not surprising. Often key writings on business strategy refer back to classic works on military strategy by Carl von Clausewitz [6] and Sun Tzu [5]. Therefore it is fitting a special section on ICT strategy for supply chains starts with a discussion of the art of military logistics. Simon, in his article, identifies the war logistics supply chain as a dynamic3 supply chain where the customers' (in this case, the frontline or battlefield unit's) needs and requirements together with resources needed to satisfy these requirements continuously change and shift. In this case demand can be forecast, only imperfectly, and rapid deployment rather than optimization is a key objective. Therefore, ICT is needed to make consumption and demand patterns visible in real time just as they occur in the operations arena. Moreover, availability, execution, status, track, and trace capabilities are more important for rapid deployment than optimization.
Despite widely differing objectives, from delivering massed firepower to delivering customer delight, all supply chains ultimately rely on collaboration between human beings. Collaboration, in turn, is a function of articulating expectations, making mutual commitments, delivering on the commitments, and tracking their delivery. Of such commitment-articulation and commitment-tracking processes, trust is born. Welty and Becerra-Fernandez come to SCM from a commitment and trust perspective. Based upon the work of Winograd and Flores, they outline a theory of commitment and trust-building, describe an ICT-based tool for managing supply chain commitment, and illustrate its use in the context of a graphics and publishing supply chain.
Earlier in this introduction, I characterized the scope of SCM as extending from "dirt to dirt," starting from the upstream sources of supply, down to the point of consumption, and finally retirement and recycling. In an environmentally sensitive world, where we are constantly in the danger of drowning in our own discarded products, while, at the same time, running out of upstream resources, it is imperative we collect, reuse, and recycle products that have outlived their useful lives.
The article by van Hillegersberg et al. extends the notion of the SCM to include reverse logistics. Based on theory developed in the area of operations research and management sciences, they first present extensions to ERP systems and advanced planning systems needed to accommodate reverse logistics. Next they examine opportunities e-business brings to managing return flows and present a case study illustrating the use of reverse logistics and the effect of return flows on ICT support for the supply chain.
Earlier this year I moderated a forum of senior executives, with participants representing a global airline; an airport cargo-handling company with presence at airports in Europe, Asia, and North America; a global freight forwarder; a global trucking and logistics service provider company; a leading provider of logistics and supply chain software company; and a global IT consulting firm. As the participants presented their visions and plans for e-business related to the air cargo supply chain, it quickly became obvious that an overall ICT platform linking these separate efforts is needed. However, none of the participants believed they were able to initiate and develop such an integrating platform on their own. Both horizontal cooperation between various competing players in an industry (such as airlines or trucking), and vertical cooperation across the various types of players would be needed to bring about and operate such an ICT-based cooperative platform. The article by Tiwari and Ramachandran reports on the some of the early results in this area.
Finally, while the concept of SCM originally evolved in the developed world, it faces complex challenges in the developing economies. Furthermore, given the enormous scale and scope of large developing economies such as India and China, ICT-based SCM has an even greater potential of contributing to the cost-value equation in these regions. The article by Krishan describes the unique market and infrastructure challenges faced by consumer-product supply chains in India and outlines ICT-based solutions currently being developed to address these challenges.
There are several lessons to be gained from these tales from the field. First, in the constantly evolving, complex world of local and global supply chains appropriate use of ICT is absolutely vital to achieving value and cost advantages in the supply chain. Early efforts in using ICT for competitive advantage have focused on the use of model-driven, advanced planning systems to reduce demand-uncertainty and optimize flows. However, as these tales from the field show, these efforts, while a step in the right direction, are not enough. Supply chain management in a dynamic, demand-driven environment requires ICT-enabled connectivity, cooperation, and coordination between players within an industry (horizontal coordination) and across industry and firms (vertical coordination). While the need for such coordination is becoming apparent, efforts to create ICT-based infrastructures to enact such coordination are currently in their beginning stages. As the concept of SCM evolves, systems that integrate whole dynamic supply chains on the fly and provide instant visibility across the supply chain are likely to emerge. The supply chains successful in creating and using such systems are more likely to achieve competitive advantage over the ones that do not.
References
1. Christiaanse, E. and Kumar, K. ICT-enabled coordination of dynamic supply webs. International Journal of Physical Distribution and Logistics Management 30, 3/4 (2000).
2. Diks, E., A. van Dongen, P. Tielemans, and M. Verhoeven. Supply Chain Management Software. Cap Gemini Ernst and Young, 2000.
3. Kumar, K. and van Hillegersberg, J. ERP experiences and evolution. Commun. ACM 43, 4 (Apr. 2000), 2226.
4. Moshowitz, A. Virtual organization. Commun. ACM 40, 9 (Sept. 1997), 3037
5. Tzu, S. The Art of War. S. Griffith, Trans. Oxford University Press, 1988.
6. von Clausewitz, C. On War. M.C. Howard and P. Paret, Eds. Princeton University Press, 1984.
Footnotes
1It is not entirely accurate to say that management of supply chains is a recent phenomenon. Standard Oil's ownership and organization of petroleum delivery from the oil wells to the gasoline stations is an example of an attempt to manage the entire supply chain for petroleum for automobiles.
2The notion of customer value and thus the automobile-buying behavior has evolved over time and may also differ from culture to culture. For example, an average European automobile buyer, having placed an order for an individualized automobile, is willing to wait a few months for it to be built and delivered, an average North American buyer not only insists of an automobile of his or her choice, he or she expects delivery within a day or two of the buying decision. Consequently, the current downstream automobile supply chains in Europe and their associated information systems are structured quite differently than their North American counterparts.
3In my search for dynamic supply chains, I found two examplesone of war, another of disaster relief that characterize the ultimate level of dynamism. In disaster relief especially, the location of disaster and the need for disaster relief supplies and personnel is completely unpredictable, the sources of the relief supplies and personnel vary and change minute-by-minute, and the logistics paths shift with the availability of carriers and supplies. Based upon this insight, a major global logistics service provider is currently developing plans for supply chain coordination in major international disaster relief agencies.
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