Communications of the ACM

Communications of the ACM

Intra-Organizational Perspectives on IT-Enabled Supply Chains

By Nitin Singh, Kee-hung Lai, T.C.E. Cheng
Communications of the ACM, January 2007, Vol. 50 No. 1, Pages 59-65
10.1145/1188913.1188918
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Information technology, in any form, has its own inherent tendencies and influences the nature and direction of organizations. It has significantly changed supply chain processes across different organizations and, in many cases, improved competitiveness. This trend cannot be stopped and therefore should be understood so that it can be directed toward enabling organizations to achieve better performance. The effectiveness of a supply chain depends on several factors. One important factor is the use of technology to conduct business transactions and to facilitate the sharing of information (within the company, as well as outside the company) and collaboration with suppliers and customers [7]. Admittedly, these technologies show great promise, but practitioners and researchers must address many unresolved issues on the organizational frontier. Supply chain technologies (SCT) and their impact on organizational processes is one such area of concern.

The choice of implementing the right technology in the supply chain has always been a contentious decision open to several debates. To take a contemporary case in point: Wal-Mart Stores Inc. and more than 100 of its suppliers are currently engaged in a big experiment—that of Radio Frequency Identification (RFID) implementation in the supply chain.¹ This is slated to continue through 2007 and would either establish RFID technology as a major force in supply chain management or relegate it to the list of technologies that have promised more than what they could deliver. The company intends to use RFID to reduce stock-outs, improve visibility along the supply chain, identify counterfeit products, and reduce prices. The advantages of RFID are clear but the fit of such a technology with organizational factors will determine the success of its implementation. There have also been cases where elaborate implementation of large-sized supply chain applications, which require months of planning and training before they yield benefits, fail to provide the benefits as originally envisaged. Dazzling new technologies are sometimes implemented to produce less-than-sparkling outcomes, causing returns on investments to appear insignificant to shareholders. Samsung Electronics experimented first with a supply chain suite developed by a well-known vendor to improve its supply chain planning and optimization. However, the desired results could not be achieved mainly due to organizational factors, system limitations, and most importantly, the inadequate fit of the technology to its supply chain. The company made an extensive effort to bring about changes in software configuration to align with its organizational factors. It ultimately decided to attempt a SCT implementation from a different vendor with an in-depth evaluation of the organizational factors and the technology to ensure better success than the previous attempt.

The key issue is applying IT to the supply chain is not, by itself, a panacea for improving the overall effectiveness of a technology-driven supply chain management program. Supply chain applications aided by transaction processing systems (for example, enterprise resources planning—ERP) and database management systems provide the wherewithal for intelligent decision making with regard to supply chain processes [10]. Yet, SCT must be compatible with relevant organizational practices and policies. These can be specific to the organization, as well as encompass such external relationships as those between suppliers and customers. Often, SCT are employed "off the shelf," causing the organization side of the system to be lost. The need to develop organizational compatibility is often overlooked, causing many attempts at implementation to fail. During the height of the dot-com boom, there was no shortage of investors willing to pour money into SCT. Now, years after the dot-com bust occurred, investors are more cautious. At Nike, for instance, it seems that its large-scale and quite rapid approach to SCT implementation was a big part of the problem. Nevertheless, there are several cases of successful implementation such as Dell's implementation of Advanced Planning Systems that brought end-to-end supply chain integration. A similar success story is that of Intel's RosettaNet initiative that has been able to align the new technology to the needs of its supply chain. These cases highlight the potential benefits of achieving a good fit between the new technology and the supply chain.²

In this context, there is an urgent need to evaluate the link between SCT and organizational processes and systems that can best leverage these technologies to improve competitiveness in supply chains. Such a contribution could spread the use of SCT and provide the reader with conceptual clarity on this topic.

In addition to organizational issues, there may be several other concerns too. For instance, a variety of legal implications may arise relating to the protection of intellectual property, software copyright, liability, and service contracts. Yet another category of issues relates to security concerns with regard to access to information. IT-enabled supply chain applications can also have an impact on an organization's relationship with its suppliers and customers. While each of these issues is important, we limit our attention here to intra-organizational issues, primarily those involving information and decision flows within an organization.

Accordingly, our primary concern in this article is to identify intra-organizational issues that affect the success of SCT, as well as the unique use of these technologies. To the best of our knowledge, this subject has not been addressed before. The objective of our study is therefore to examine the direct effects of the implementation of SCT on managerial relationships within organizations. This work is by no means exhaustive. Rather, it attempts to develop an incisive theoretical framework for the intra-organizational effects and implications of SCT so as to improve our understanding of the dynamics subsequent to their implementation within a specific organization. It also clarifies the link joining IT and organizational processes in supply chains and develops a platform that facilitates a more detailed study of this aspect.

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SCT

The development of communication technologies has been crucial to enabling end-to-end information in supply chains. The Electronic Data Interchange (EDI), which was established in the 1990s, has enabled the electronic communication of transaction information in a one-to-one link. Eventually, this evolved into Internet-based communication technologies such as eXtendible Routing Language (XRL), which allows the partners in a supply chain to exchange information electronically while also supporting the routing of documents [1]. Concurrent to these have been developments in Advanced Planning Systems (APS). APS are driven on quantitative models and represent the use of information and communication technologies to support supply chain management [7]. Essentially, these are standard software packages driven by quantitative model-based algorithms. Such systems can appear as a single composite application that provides the business functionalities of supply chain design, purchasing, manufacturing planning, scheduling, warehouse management, facilities, transportation, demand management, order fulfillment, and so forth. Alternatively, such functionalities can be obtained separately through independent software modules like Warehouse Management Systems (WMS) and Transportation Management Systems (TMS).

A recent survey on supply chain software presents its state-of–the-art technological features [2]. Major vendors provide standard as well as customized software products for specific business functions. These vendors include i2 Technologies, Manugistics, Invensys, SAP, JD Edwards, Oracle, Nistevo, Logility, Synergen, Prescient, SupplyWorks, and Transentric (to name just a few). Some vendors such as Nistevo, SupplyWorks, and Synergen have their core competence in software related to a particular business function, which might include purchasing, transportation, and so forth. We may conclude that SCT varies from being purely informational to being decision oriented. In the former category are communication technologies (such as EDI, XRL); in the latter category are APS and business function-specific software products that present managers with choices when making decisions. There are some technologies that are transactional—like ERP—that enable the processing of business transactions. Indeed, a thorough understanding of the impact of each and every transaction provides the ability to manage the organizational process and make adjustments to meet competitive challenges in the supply chains. For the remainder of this article, we will collectively refer to all the technologies that have been discussed in this section as SCT.

To successfully implement SCT in an organization, careful attention should be paid to the parameters that influence the relationships between different units and functional areas of the organization. These relationships can be classified into two themes: information and decisions. We will explore these two themes in greater detail and simultaneously elaborate on our rationale for conceptualizing the link between SCT and organizational processes and systems.

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Intra-Organizational Coordination

The growing application of IT has made it possible to better integrate the activities of individual organizations and the components of organizations across supply chains [8]. Nonetheless, a bigger but often overlooked challenge is to align organizational processes with the new information technologies for supply chains [3]. The literature on strategic management suggests that a misalignment of strategies, for example, strategies for the use of IT and for the management of organizational processes, will compromise performance [12]. In any organization, structures are created to facilitate the coordination of activities and to control the actions of members of the organization. The use of SCT has implications for these structures, including for their complexity, formalization, and centralization, to govern organizational processes.

An organizational process can be defined as a collection of tasks that transform a given set of inputs into a desired set of outputs. The inputs and outputs may be informational (for example, order sheet) or physical (such as raw material), and the tasks may also be informational or physical. In addition, an important purpose of organizations is to implement such processes [5]. The failure to properly align SCT with organizational processes can result in a number of managerial problems.

According to the resource-based view of the firm, competitive advantages originate at the firm; specifically, they are derived from the resources and capabilities of the firm [11]. The alignment between the uses and the processes of SCT in an organization may also exhibit characteristics of inimitability and non-substitutability that are essential for the firm to achieve competitive advantages. For instance, if a firm's superior performance is driven by a formidable alignment of IT uses/organizational processes, this performance will be difficult for competitors to imitate and there may be no substitute for the alignment in driving performance.

Examples of a lack of alignment are a lack of coordination between several different processes, or conflicts between managers concerning roles. It may also happen after the implementation of an IT-based supply chain solution that the same work is repeated in different functional areas. Since the processes involved may be fairly complex, involving many tasks and resources, it is important that the result of the implementation of IT in a supply chain is not a collection of incomplete, incompatible, or overly cumbersome tasks.

As an illustration, consider the case where an organization has divided its distribution set-up among various divisions (transportation, warehousing, and so forth). Such a scenario reflects a heavy concentration of product inflows from different manufacturing locations and outflows to markets at the warehouses. Needless to say, a plethora of transaction processing activities (such as inventory records and delivery schedules) are required at the warehouses and the information must be updated accordingly at other locations of the organization. An IT-enabled supply chain can make this easier, but its adoption poses the following question: Is the manager willing to share all (and accurate) information commensurate with organizationwide goal(s). Indeed, such a situation demands an alignment of incentives between different supply chain managers so that the managers will be willing to provide information on the actual cost and value on supply chain processes.

To further illustrate this point, consider a customer who has placed an order with the organization for five computers (of a specific model). The workflow of manufacturing and distribution, for instance, will interact in a variety of ways (where workflow is the task used to realize a process under a particular set of conditions). The customer may need to check the status of his order using queries such as: Where is the order? How much more time will it take? These are all standard queries. In addition, the customer may possibly modify the order, for example, by including a high-speed USB drive in only two out of the five computers on order. These requirements and queries need fine and appropriate embedding of pertinent organizational processes in the information systems to allow interoperability and seamless coordination between different units and locations.

A recent study by Capital Consulting and Management Services reveals the majority of investments in SCT have not yet paid off in bottom-line improvements—fewer than 20% of companies believe SCT has shown a favorable return on investment [4]. A major reason for such a low success rate is a lack of alignment between SCT and organizational processes. To summarize, we present the conceptual architecture along the following dimensions:

• Nature of use of SCT
• Nature of processes
• Nature of SCT

In the first case, we evaluate along the specific use of SCT ranging from communication-oriented to decision-oriented [10]. Technologies such as email, EDI, and so forth primarily used for messaging and communication purposes can lie at one end of this dimension. The use of technologies that require more integration and are transactional in nature are positioned on the same dimension but are further higher up the axis. The nature of processes, likewise, can be segmented into formalized and non-formalized. The management of organizational processes can be formalized or non-formalized. It tends to be highly formal in a highly complex organizational environment [9]. Essentially, the purpose is to have a more structured approach to combat complexity. A high degree of formalization in organizational processes will also be required in cases where the SCT that has been adopted is more complex, decision oriented, and requires clearly articulated tasks, workflows, incentives, and performance management. In the third dimension, we categorize the SCT from being purely informational at one end to being decision oriented at the other. In the former category are communication technologies (such as EDI and XRL); while in the latter are APS and business function-specific software products that present managers with choices when making decisions.

The complexity of a supply chain is a function of the volume and variety of the products, number of locations, resources, and so forth. For example, the complexity of sustaining any system that covers geographically dispersed locations is very high; running and supporting distributed SCT at all of these locations can be very costly and onerous. A common issue any manager has to deal with is: What is the right SCT for me? Each supply chain has its own characteristics and complexity and comes with its own unique organizational processes. The idea is to find the best fit between the requirements of a supply chain and what the SCT has to offer. We attempt to address this issue and present an architecture that gives decision support to match different SCT offerings with the requirements of supply chains. It attempts to draw the conceptual alignment between specific use of SCT and formalization in organizational processes. It also evaluates SCT on another dimension—whether SCT is informational or decision oriented.

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Conceptual Architecture

Supply chain planning systems can be ideal for strategic-level decisions that require a formalized process. Decisions in this case have long-term implications. Typical business function-based software (such as TMS and WMS) is specific to the process and would demand more flexibility and informal processes for effective use. As an example, let us review the use of WMS. To capitalize on the organizational processes related to warehousing, the software should support distributed processing (aided by distributed database management systems and telecommunications infrastructure), be usable at different levels of the hierarchy while providing relevant security rights and information, and ensure faster decision making on operational issues (such as the handling of materials, scheduling, and so forth). Logically, the software must be very flexible to permit customization to accommodate flexibility in tasks and workflows that management at a warehouse would normally encounter. Lastly, it must be very user friendly in order to be used at different levels of an organization. In fact, a business function-based system can offer relatively more features and flexibility for customization and changes than an APS. On the other hand, a business function-based system raises concerns of interoperability since such a system can transform business functions into islands of automation. Admittedly, this points to a need to put in place a system that should be able to capture the complexity requirements of a supply chain while also meeting the needs of organizational processes. A supply chain software product geared toward a specific business function is likely to produce more benefits for the organization in an informal system of process. Conversely, a highly formalized process would warrant a more end-to-end solution that APS can provide. We propose there can be a line of fit (which would lie more or less on the diagonal shown in the figure here). Any supply chain software should ideally be situated on this line. We expand the justification of this framework by weaving some examples and cases along the `line of fit' to further explain why it is the ideal for the implementation of SCT. Indeed, these accounts are anecdotal and not entirely exhaustive but they serve very well to illustrate the fit of SCT to the organizational factors as indicated in the conceptual architecture.

Information for decision making is another dimension of interest. Communication technologies lie at one end of this dimension. Simply supporting the exchange of data using a particular communication technology without specifying ways of doing business is counterproductive. Likewise, decision making without formal systems on incentives and performance is not beneficial. A very simple technology without many features and approaches would align better with informally managed processes. Communication technologies fall into this slot. SCT like RFID that facilitate communication also must be integrated with other systems like WMS and ERP since such an integration can yield greater supply chain visibility. H.J. Heinz Co., a consumer goods company with approximately $10 billion in annual revenue, has implemented an RFID system in its supply chain.³ To initiate the project, it examined its business processes and outlined possible uses of RFID, both now and in the future. Identifying business processes helped it to see the formalized nature of its processes in terms of its communication, both internal and external, for RFID use. Heinz has also set up a testing center in a distribution facility co-managed by a third-party logistics service provider. A proper alignment of technology with processes helped Heinz to develop a step-by-step plan that enables Heinz to equip its production lines with an RFID-tagging station at each of its 10 manufacturing plants throughout North America.

By contrast, the highly formalized management of organizational processes is found to be incorporated in systems that are very complex and require a structured way of doing things. The opposite is true for simpler systems. Indeed, firms operate in different market niches and have different competitive foci. Consider the case of ON Semiconductor Corp., which runs Version 6.1 of i2 Technologies Inc.'s supply chain planning and factory planning application. It is finding new ways to deploy the software and lean manufacturing methods.⁴ There is a team in the company devoted to continuous supply chain improvement in the use of technology for decision making. ON's analog division attempts to best use various functionalities of this APS-like multi-echelon planning inventory tool. This application allows ON to decide whether it is necessary to keep surplus inventories across its supply chain, and what sorts of raw supplies or subassemblies are needed at each stage of manufacturing. Typically, such systems must be embedded in "highly formalized" processes while at the same time facilitating decision support.

In the same dimension of highly formalized processes where tasks are transactional, there must be be a different and more apt SCT. At this juncture, it needs to be understood that informal processes and software flexibility are two different issues. Flexibility, and the ability to customize supply chain software, is always valued. Informal processes are related to the organizational factors like structure, relationships, and so forth. Within a single organization, transactional systems may increase performance if they require formal processes, where different facilities use the same operating procedures, consistently. Most transactional systems fit well to highly formalized and informational tasks. In such an environment, the tasks are narrowly defined and can be automated. The framework, presented in the figure here, indicates that SCT related to transactional systems would be best suited for highly formalized and informational tasks. SCT that facilitate decision making and, at the same time, are flexible in terms of their applicability and open to customization can greatly contribute to "less formalized" systems. Admittedly, domain-specific systems like WMS and TMS are apt SCT candidates that would fit in this area.

Safetran, a manufacturer of railroad-crossing equipment, has been using BaaN ERP software since 2004 to help support just-in-time manufacturing and other lean processes. The software enables Safetran to automatically check actual inventory in the factory and handle complex parts ordering without the need for a planner to look after the physical matching of demand with stock. The most difficult challenges for the company involves mapping the processes to the software and creating a consistent set of methods to employ, as well as reformatting the data from the mainframe application for use in the Baan ERP software. This evidently points to the fact that herein we have a technology that is transactional and is suited for a highly formalized system. The company is anticipating the system to deliver a return on investment within 18 months.

Evidently, alignment must be evaluated relative to a firm's market niches and competitive foci. Nevertheless, by and large, such architecture provides contingency guidelines that are immensely useful for selecting SCT with respect to the specificity, functionality, and management of organizational processes.

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IT-Enabled Decision Making in Supply Chains

More recently, critics have emphasized the increasing tension between organizational relationships and IT. It is widely recognized that a specific technology will always shape human nature in specific ways, because the use of technology is such a fundamental aspect of being human. The second dimension concerns that of decision making and the execution of such decisions, which might occur at a different level or functional unit. The clear execution of decisions is possible only through empowerment and not under traditional job limitations [6]. It also requires managers to be clearer about their authority, the reporting relationships in the organization, and their role in the organization.

The issue of relying on the choices of `optimal' decisions the application gives to the manager and the credibility such decisions would have from the perspective of subordinates or managers in different functional units is critical. Therefore, the centerpiece of any such technology program should be to increase the level of skill in an organization in terms of the use of the technology, familiarity with the technology, and the adoption of an active approach to dealing with problems of implementation. This is where the issue of autonomy comes in. What is the balance between manual work and work that might require more intellectual effort?

Of course, this issue is also governed by the architecture of supply chain applications. Usually, strategic-level decisions such as those concerning investment, the location of facilities, product portfolio, and so forth are long-term and are made at a centralized level. Generally, these decisions are offered by specific modules such as supply chain designers, which again must deal with the trade-off between competing demands of granularity in the models and the time taken to solve such problems. The constraints of solution time have confined this exercise to the areas of strategy and business policy. Indeed, it might be possible to devise a more centralized approach that produces a globally optimum solution to realizing cost efficiencies. With the increasing processing speed of computers and the embedding of advanced optimization software within supply chain applications, such an approach might be feasible. Nevertheless, the questions remain: Is it really beneficial to centralize decision making? What are the costs and benefits of taking away autonomy because of SCT? To grapple with these sorts of questions, the decision to adopt SCT must be based on absolute clarity on the processes of the organization and their compatibility with the SCT that is being explored. On this note, we present the key implications and issues requiring the attention of managers.

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Conclusion

In this article we have focused on addressing the question of which SCT managers should adopt if they wish to improve the performance of their organizations. The choice depends on the nature of the technology used and the organizational processes. Every organization has its own context-specific requirements for the adoption of technology and preferences toward certain SCT. The critical concerns in IT-enabled supply chains, however, lie in the compatibility of the technologies with relevant organizational practices and policies (which are part of the organizational processes) before such technologies can be extended to the level of the inter-organizational supply chain. The conceptual architecture presented in this article suggests that SCT and organizational processes should be aligned; otherwise, the decision to adopt a SCT may only be a "me-too" strategy that jeopardizes the investment in the technology.

Although SCT are gaining popularity because of their potential to improve the performance of organizations, many firms do not have a systematic framework to assess the fit of various types of technology to the situation in their organization and the implications of adopting such technologies. The conceptual architecture of this study provides such a framework, enabling managers to select among a spectrum of SCT. To succeed, management must have clear objectives and an in-depth understanding of their organizational processes, including their business operations, to be able to specify the nature of the use of the technology, the characteristics of the processes requiring SCT, along with a strong grasp of the expected outcomes of investing in the technology.

Moreover, the management of an IT-enabled supply chain does not end when a technology is adopted. It is all about cultural change in management policies, organizational processes, performance metrics, legal framework, organizational structure, and so forth. All of these issues are collectively, as well as individually, important for managing an IT-enabled supply chain. Such a supply chain requires regular reviews and updates on the fit of the technologies adopted to the contexts of the organization. We also posit that a strategic approach is useful in clarifying management issues and providing an analytical framework to avoid potential problems in investing in technology. The conceptual architecture on the alignment of organizational processes with the nature of the technology used helps managers isolate problems relating to the choice of a specific SCT within the boundaries of the organization before they can be extended to the other partners in the supply chain. This article primarily addresses concerns related to organizational processes and the fit between the SCT and the structure of the organization (in the discussion on managerial relationships). Nevertheless, this study is by no means a comprehensive analysis of all of these issues but we hope it will serve as an effective guideline for charting the relationship between organizational and technological variables.

It is also pertinent to note that for the process of implementation to succeed, a clear roadmap must exist for aligning SCT with organizational processes, with the managers executing the processes, and with the performance metrics for assessing performance outcomes. Managers also must understand the characteristics of different SCT and the ways in which they must be configured to fit the requirements for implementation in the firm. In selecting SCT, managers should not just seek a "quick fix" technology that is considered applicable to all types of organizations. Rather, their choice should be guided by the nature of the technology and the characteristics of the organizational process. These contingency factors demand that managers not only understand the technology, but also appreciate the complexities of their specific organizations before making any decision on the adoption of SCT.

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