Modern SCM Concepts

While researching the literature concerning SCM, a few research areas are often encountered. As the SCM literature commenced in the 1980’s, the main contents of the research was to define and understand the supply chains. Later, the researchers seem to have concentrated in defining how to use SCM as effectively as possible. In the modern literature, several concepts for effective SCM have been presented, but three concepts tend to appear in the background fluently. These strategic concepts are supply chain collaboration, agile supply chains and supply chain integration, and they are presented in the following sections.

Supply chain collaboration

Co-operation within the supply chains is often referred as supply chain collaboration. During the last decade, new forms of collaboration in supply chains have been developed. They are developed in order to further advance the ordinary information sharing relations. The new forms of collaboration extend their focus to include not only a passive exchange of information between the partners, but also a more proactive approach through common planning and synchronisation of activities and business processes.

To reach such collaboration, several personal contacts were required in the past. However, with modern information technology a great deal of co-ordination and face-to-face meetings are possible to replace by technology.

The companies in the supply chains need to have common goals. Collaboration can help the individual companies to understand the goals of the whole network whether it involves both the economic goals and the social dimensions of the network. For this purpose, a concept Collaborative Planning, Forecasting and Replenishment (CPFR) was introduced 1995. The concept is defined as

“Collaboration where two or more parties in the supply chain jointly plan a number of promotional activities and work out synchronised forecasts, on the basis of which the production and replenishment processes are determined.”

The CPFR concept includes the processes of planning, forecasting and replenishment in the supply chains and aims to soothe the information exchange between companies. The concept is based on a nine-step process model that works as a guideline towards CPFR collaboration.

Agile supply chains

An agile supply chain has a high capability to flexibly adapt to the fast-changing environment. With this capability, the network can more easily accomplish the paramount goal of the supply chain; gain customer satisfaction. An agile supply chain consists of well-designed organisational structures, information systems and logistics processes. However, the principal fact enabling agility is the skills of the management.

The agility of supply chains is also understood as a measure of how well the relationships between members enhance the four pivotal objectives of agile manufacturing. Basically, agility is about the combination of speed and flexibility of the network.

“Agility means using market knowledge and a virtual corporation to exploit profitable opportunities in a volatile marketplace.”

The benefits of agility can be found at all the actors of the supply chain; every company benefits from the supply chain being flexible and responsive. The agility is often achieved by modern information technology, which enables to react quickly to the fluctuations in product demand and sourcing problems. The agility can be applied in a range of business situations in the companies.

Agile organisations are market-driven, often investing in product research and striving towards short development and introduction cycles. Furthermore, an agile company performs all physical activities quickly and accurately because the faster material, information and decision streams through the chain, the shorter the response time to the market needs. An agile company attempt to shorten the distance between the points in the flow.

Supply chain agility can be seen in the terms of two dimensions: reach and range of the activities that are covered by the information systems. With reach is meant the extent of the used information system in the organisation and its environment, while range means the level of the integration between actors’ information systems. When both of the dimensions are achieved maximally, the internal operations will be transparent to all supply chain members and the earlier discussed benefits could therefore be obtained. In practise, this can lead to employees thinking globally and, for example, setting up virtual teams between companies within the supply chain.

Supply chain integration

Integration along the supply chain has been considered to be a source of competitive advantage. Therefore, numerous logistics managers and researchers have seen integration as an interesting and important issue to research.

Christopher presents four different phases to supply chain integration. At first, the companies have their internal departments that strive for optimised processes inside them. By doing this, the departments become competitors to each other and they do not care how the following department will be affected if changes are carried out. This is illustrated as stage 1 in below figure.

Stage 2, the functional integration, is a step towards a company-wide integration. By communicating between the departments, the functions that are dependent on each other, will build integrated blocks. These functions could be, for example, purchasing and material control. Sharing the market information between functions should guide the firm to respond better and faster to customers’ needs or problems and to competitive threats. Consequently, fluent responses to the challenges that customers are placing should produce greater loyalty, profitability, and sales.

The third stage represents already an internal integration, where the functions inside the company are integrated so that they all strive to common goals. The company must have a culture for internal integration before being able to share information with external partners, e.g. suppliers and customers. Achieving this stage needs unrestrained communication between the departments, and this can be accomplished, for example, by using modern information systems.

The fourth stage, external integration, illustrates the eventual goal of coordinated processes: the supply chain management. In this phase the participants of the supply chain have common goals. Like logistics strives to create an optimised flow through a company, SCM strives to optimise the coordinated processes through the whole supply chain and its participants.

Information systems and other communication technology are seen as the enabler for working external supply chain integration. Technologies like EDI, for example, could reduce demand amplification effects along the supply chain. Reduced stock keeping costs and improved delivery performance are often pointed out as consequences for the better information flow between the supply chain actors.

Many companies try to upgrade their logistical capabilities with focus on information based logistics partnerships and on integrated SCM. They warn that forming these solutions require time to develop and integrate, because: distinctive logistics capabilities involve a complex combination of physical assets organisational routines, people skills and knowledge.

Companies who pre-empt competitors by securing successful partnerships should be better positioned to develop and enhance their logistics capabilities.