The Supply Chain Management Theories or the Enterprise Resource Planning Approach - Research Paper Example

To remain competitive it is no enough to follow the supply chain management theories or the enterprise resource planning approach. It becameimportant to evaluate the performance of the supply chain across all members and across all levels. Firms have been forced to look at alternatives such as dashboards and balance scorecard (BSC) as the executive information system. While the initial approach of BSC was to integrate four different perspectives into the supply chain, subsequently various researchers found that apart from the four perspectives – customer, financial, internal processes and innovation and learning, product attributes and corporate characteristics are equally important. Besides, the BSC approach has to be in alignment with the corporate overall strategy. The managers too need to have diversity in training and not merely in managing supply chains. Dashboards too weave the data together and help the executives to take an informed decision. Dashboards enhance the performance of the supply chain as they display the leading and lagging indicators. All these have become necessary because it is no more sufficient to have financial measures. Non-financial measures too have to be integrated into the overall strategy and planning of an organization. Introduction Organizations have been devising new techniques and incorporating innovative business process to remain competitive in the global market place. A firm’s business model in one large process made up of several smaller interrelated processes. Operations involve the different activities involved in bringing the products and services to the customer. Several methods such Enterprise Resource Planning (ERP), supply chain management (SCM) and customer relationship management (CRM) have enabled to enhance the existing processes and geared them towards innovation (Baker & Maddux, 2005). However, the ERP systems do not provide the “dashboards” and the “scorecards” necessary for the executives for strategic management (Liang & Miranada, 2001). The new web-based executive information systems (EIS) constitute the new era of public management. By providing a single information gateway, line managers and the executives can build their own dashboards and scorecards that would summarize and provide them data on real-time basis. The objective of these web-based systems is process optimization, determining key performance indicators, extensive cost analysis, use of work flow for alerts and performance measurement. Supply chain management (SCM) and Dashboards SCM can enhance organizational effectiveness and competitiveness in the current environment of global marketing and outsourcing (Park, Lee & Yoo, 2005). While many adapt the SCM, firms rarely measure their SCM performance. For effective SCM there should be a balanced approach towards performance measurement and these should be classified at the strategic, tactical and operational levels (Sharma & Bhagwat, 2007). A company needs to focus not only on the financial performance measures but also on the non-financial measures. The Balanced Scorecard (BSC) is a useful tool to measure corporate performance from different perspectives. BSC is a powerful and balanced strategic management system that facilitates the implementation of strategy. It uses measures to ensure that the corporate vision and strategy are implemented and achieved (Chia, Goh & Hum, 2009). Cost reduction and new products are no more the parameters of success. Scorecards of forward looking companies include supply chain metrics such as shipping accuracy through perfect order metrics and cycle time reduction (Slota, 2002). A performance dashboard on the other hand is a complete business information system built on business intelligence and data integration structure (Strandhagen, Alfnes & Dreyer, 2006). Through scorecards and dashboards, the customers and the suppliers, both get a view of the suppliers’ performance as per customer requirements (Rizza, 2006). The key areas of measurement are cost, quality, delivery and service. These key performance indicators (KPI) measure the suppliers’ performance in terms of customers’ needs which can be reviewed. Dashboards are also used to process the scorecard information in real time and if the potential areas of failure can be predicted, risks can be mitigated. While scorecards are mechanisms for visual display of performance information in a user-friendly way, performance dashboards weave together the data, the application and the rules that drive what users see on their screens. Performance dashboards consist of three applications areas – monitoring, analysis and management. BSC in supply chain management Balanced scorecard (BSC) was introduced was introduced by Robert Kaplan and David Norton offering a different approach to process management. Any process management requires structural changes so that businesses can operate around processes instead of functions (Baker & Maddux, 2005). Kaplan and Norton had developed their own model based on individual firm implementation and organization-specific measures. According to them each firm creates its own set of measures to analyze performance. The basic questions that the BSC answered were: how do customers see us (customer’s perspective), what must we excel at (internal perspective), can we continue to improve and create value (innovation and learning), and how do we look to shareholders (financial perspective) (Chia, Goh & Hum, 2009). This was countered by another author Kanji who opined that this approach was not based on universally proven indicators of organizational excellence (Knotts & Jones, 2006). Workers’ adaptability to change is equally essential. Process management also requires knowledgeable individuals that are able to manage the change efficiently. Among the various processes, the supply chain industry is one of the most innovative, complex and dynamic in the world and the performance management of the participants in the entire supply chain is very complex (Barber, 2008). The purpose of SCM is to create value for all in the entire supply chain including the customer. Since today changes in the processes, technologies and organizational structures have become common place, the supply chain industry must also be able to respond to every changing strategic challenge. According to the balanced scorecard (BSC) four perspectives should be measured to provide a more ‘balanced’ concept of the overall performance of business, which includes financial aspects, innovation and learning, customer perspective and internal operations. However, the perspectives have to be tailored to suit individual business requirements BSC is necessary for continuous improvement as well as strategy development in changing environments. According to Barber there is little scientific evidence to prove that the implementation of BSC leads to improved performance in supply chains. It is necessary to have a clear understanding for the ideal supply chain in operating in a given environment. The user must be sure of what he expects by adding value to the supply chain otherwise implementation of the BSC is useless. Value in a supply chain can be both tangible and intangible and the integration of the different areas is important. If the collaborative partners are able to recognize all the contributing areas such as the processes, procedures, information, financial linkages, management of knowledge, innovation, strategies, change and relationships, value addition is successful. The general framework for the BSC is as follows: Source: Beasley, Chen, Nunez, Wright (2006). While the four processes are generic in nature, it plays a vital role in SCM. SCM generally encompasses activities associated with the flow of materials and information associated with the flow of materials and information from raw materials to the end user (Beasley et al). Companies have various methods of managing their supply chain including outsourcing, just-in-time (JIT) systems and sophisticated information system networks. Any disruption anywhere in the supply chain can impact the company’s ability to continue operations and supply products/services to the market. Supply chains have become lengthy which has increased the risk level in maintaining them. Disruption can arise form both internal and external sources such as natural disasters, labor disputes, supplier bankruptcy, IT systems breakdown, capacity problems and terrorism. BSC under the circumstances become vital to manage supply chains as the chain can extend from the suppliers’ suppliers to customers’ customers. This chart below explains how BSC can be used in the supply chain management: Source: Beasley et al. Several functions like accounting, manufacturing, logistics and sales across several different organizations can be integrated and the integrated measure can show how the chain is performing. It also provides an incentive to work with other members of the chain. The nonintegrated measures provide a diagnostics on where the problem is occurring and within the forms associated in the supply chain. The table below links the SCM with BSC: Source: Brewer & Speh (2001). The four different perspectives of BSC can be used in different ways in the SCM as discussed below and as demonstrated in the table below: Source: Brewer & Speh (2001). Customer perspective The BSC requires that the management must align their corporate mission statement on customer service into specific measures and these should reflect the customer needs and wants (Sharma & Bhagwat, 2007). Customers are concerned with the lead time, the quality of service and products, the service performance and the cost effectiveness. They expect transactional ease and perfection in order fulfillment (Slota, 2002). Hence there is a direct correlation between customer relationship and how many times the order is fulfilled correctly in the first attempt. The number of customer contact point is equally important. This is a measure of service quality that captures how many people the customer has to interact with in order to be served. Ideally there should be a single contact point because numerous contact points can lead to delays in responses, miscommunications and waste (Brewer & Speh, 2001). Relative customer order response time is another measure which helps to compare the time it takes one supply chain to respond to a comparable order. This measure ensures that a supply chain does not become isolated from its competitors or remain ignorant of customer expectations especially when they compare the service with world-class companies. The third customer perspective is the flexible response measure that helps to assess how the customer perceives the relationship between customization and response time. The survey data would help to determine whether customers feel free to make customized choices as far as packaging, case-count or product configurations are concerned. It also helps to assess whether the customer feels the customized choices are being provided in a timely manner. Customer value ratio examines the customer’s perception of supply chain performance in terms of quality, time and flexibility in comparison to the cost incurred by the customer. Business process perspective The business processes in an organization have the greatest impact on customer satisfaction factors. The BSC helps the firms to decide which processes and competencies they should excel at and specify measures for each of them (Sharma & Bhagwat, 2007). Under this perspective also there are four measures according to Brewer and Speh (2001). Business process measures track the performance of the entire supply chain. The supply chain cost of ownership measure captures the cost across the supply chain in different functions such as purchasing, inventory and quality control and delivery failure. Wasteful or inefficient processes become identifiable and the results can be evaluated against historical or relative performance. The supply chain cycle efficiency is a measure that helps to pinpoint the problem or determine how efficiencies can be gained. Another measure is the number of choices relative to response time and it can be applied to numerous specific applications. This is a ratio which determines how effectively the supply chain is able to offer variety to the customer without increasing the time taken to create this variety. This assessment can help an organization to increase the ratio by offering more variety within the same or lower time frame or by providing the same level of choice at reduced response time. If such BSC measures can help increase the variety and decrease the cycle time there will be distinct advantage. The percentage of supply chain target costs achieved can help to ensure that process improvements can be translated into targeted cost reductions. This suggests that non-financial improvements do not translate into cost savings. Streamlining a process can only lead to additional idle capacity. However all of these measures require efficient and honest coordination, cooperation and information sharing among the supply chain partners. Wal-Mart is a typical example of bringing about efficiencies through out its supply chain by evaluating and enhancing the business processes of all its partners in its chain. The health and beauty products are packaging intensive and the packaging comprises several components, apart from secondary packaging and shipping materials. Wal-Mart has 14 sustainable value networks and each network has a core group of Wal-Mart employees in addition government and non-government representatives (Newman, 2007). Wal-Mart has 60,000 suppliers globally and they allowed one full year for its suppliers to input their date on the scorecard. This data helped Wal-Mart to use the scorecard to measure and recognize the entire supply chain based on the company’s ability to use less packaging, utilize more effective materials in packaging, and also source these materials more efficiently than other suppliers. Innovation and learning A company’s ability to innovate and create directly adds value to the processes (Sharma & Bhagwat, 2007). This is a continuous learning process and it can bring about efficiency in the domain of the business. The first measure under this is the product finalization point which addresses the issue of postponement (Brewer & Speh, 2001). It has become imperative to push the finished product as close to the customer as possible so the inventories are kept to the minimum. Postponement can hence be managed in such an innovative manner that enables the supply chain to reduce the time between finalization and customer delivery. The product category commitment ratio measures the extent to which the supply chain partnerships truly exist. Secondly the potential risk that each partner of the supply chain is exposed to, can be assessed. It helps to determine the imbalances if any in the supply chain partnerships. This measure can be linked to others in the BSC such as the profit margin. It helps to determine whether true partnerships exist or there are imbalances where one partner can take advantage of the situation. Shared data sets relative to total data sets can help the supply chain partners to create a common language for managing various processes. Information sharing is vital in the supply chain partnerships because it helps to eliminate waste and duplication of processes. The extent to which companies share vital information denotes the success of the supply chain partnerships. The performance trajectories of competing technologies helps to assess which emerging technologies can become a threat to their operations. Environmental scanning helps to monitor the competitors as on ongoing process to keep a track on the emerging technologies which can add value to the supply chain collaborations. Financial perspective The financial goals of a company include achieving profitability, maintaining liquidity, and solvency – both in the short and the long term, growth in sales turnover and maximizing shareholders’ wealth (Sharma & Bhagwat, 2007). The profit margin of each supply chain partner helps to determine if there are imbalances in the partnerships. This can lead to power imbalances common among companies engaged in such partnerships. Cash-to-cash cycle is another critical financial measure that ties together important processes in the supply chain (Brewer & Speh, 2001). This determines the average time taken to convert the cash spent on the cycle till it comes back as cash. Faster cash cycles denote efficient supply chains and supply chain partnerships. The sales and profit generated annually by each customer can be determined by customer sales and growth profitability measures. Three major patterns of performance can be determined – the sales of any customer should steadily increase every year. The profits from a customer should hold constant on a percentage basis or if possible the customer margin should increase as the length of the relationship increases. The customer-base should also increase which means sales should expand. At the same time each new customer should add to the profits and not merely for the sake of having new customers. Dashboards The BSC complements the financial measures of past performance with measures of the drivers of future performance. Once this has been done, dashboards and KPIs then inform people on how they are doing and then the analytic tools are used to uncover the root causes of any performance problems (Eisman, 2008). Hence dashboards and analytics must be a part of the common framework for the entire organization, which can help the company to evaluate trends. Customized dashboards quick overview of the KPIs in a user-friendly manner as monitoring can be focused and analysis done (Bukkapatna, 2005). Decision-making in business in now extensively supported by business intelligence (BI) and the process comprises of three stages – intelligence finding an occasion for making decisions, analyzing alternative courses of action and selecting a course of action. For instance, Western Digital employed a dozen dashboards with their own on line analytical processing (OLAP) databases that helped their staff accelerate their Observe-Orient-Decide-Act loops of the processes monitored. Dashboards also help companies to measure how much of innovative ideas come from the suppliers (Bagshaw, 2009). The dashboards give the idea and the monetary business benefit. If a firm supplies to several business units within the organization, companies use dashboards and reports to share knowledge through a database. SCM and BSC in the automotive industry In the US automotive industry competition has intensified and GM, Ford and Chrysler remain behind in many areas whereas three Japan-based automotive companies are rapidly gaining ground (Czuchry, Yasin & Khuzhakhmetov, 2009). Supplier Park was proposed to be set up to enhance supplier partnerships in the US automotive industry where profits and customer base have been constantly reducing. Suppliers in this industry are treated as partners and the partnership has moved away from the traditional method of functioning as the Original Equipment Manufacturer (OEM) and independent suppliers that competed on price alone. Supplier Parks help the manufacturers to remain competitive in the industry as they can evaluate their supply chain partnerships against different parameters. The cash-to-cash cycle will improve in the automotive industry with the Supplier park concept and proximity will ensure enhanced communication and information exchange at reduced costs (Czuchry, Yasin & Khuzhakhmetov, 2009). This will help in assessing several aspects such as growth in total sales, return on investments, return on equity, and total cost decrease. Return on value added would help to decide if outsourcing is more profitable in supply chain collaborative partnerships. From the customer perspective, whether customer satisfaction determines the automobile purchase decision can be determined through the help of the BSC. Appropriate control over suppliers is essential in the automobile industry and there has to be a systematic approach in implementing innovations. In the case of Volkswagen, before an innovation is implemented, its impacts are quantified. These impacts are discussed during weekly meetings where all the partners review the production process. Such collaborative arrangements help to ascertain if the innovation is costly, time consuming or has conflicts with other processes. This will help to determine the potential risks and the impact on the profit margin. A study was conducted by Knotts and Jones (2006) of 236 small manufacturers that wanted to be mass merchandisers. Each firm had to complete a self-assessment instrument and allow the product to be independently evaluated by a trained marketing professional. The study revealed that a balanced approach is necessary in evaluating firm performance. BSC is a valid measure for small firm performance at least in the manufacturing sector. If product attributes are added to the four perspectives of BSC, then both buyers and suppliers would be able to avail of this approach to accurately assess the strength and weakness of a relationship. This is because each different product type requires a different supply chain (Park, Lee & Yoo, 2005). The products can be function or innovative where the functional products have a stable, predictable demand with a longer lifecycle such as groceries. The innovative products on the other hand have unpredictable demand with shorter life cycles such as the fashion and technology goods. Again, perishable products require a different performance measure than simply considering the product lifecycle. According to Park, Lee and Yoo (2005), SCM measures are not reconciled with the BSC and the notion of the BSC needs to be extended in two ways. Firstly, the business perspective needs to be expanded to include the inter-organizational process for the communication and collaboration of SCM between suppliers and customers. Secondly, the demand chain process needs consideration from the customer perspective. Hence, when the demand chain is considered, there is an overlap between the customer perspective and the internal business process perspective. The authors also observe that a standards set of performance measures cannot fit ever company as each company has its own corporate characteristics which significantly influence the importance of measures. The SCM measures have to be reconciled with the corporate level BSC by merging and identifying its relationship with SCM activities. The customer perspective in the BSC consists of the unique mix of product and service attributes, customer relations, and corporate image (Park, Lee & Yoo, 2005). The authors suggest that the objective unique mix of product and service attributes should be expanded to Improve Product Leadership and the objective customer relations should be renamed Improved Customer Relationship. Product attributes and corporate characteristics have to be integrated into the BSC to derive the right measurement of performance of the entire supply chain. Chia, Goh and Hum (2009) conducted a study to determine how the senior supply chain executives perceive performance measurement from a BSC perspective. The study found that even though a balanced approach to performance measurement is needed, firms continue to focus on the traditional financial measures such as gross revenue, profit before taxes and cost reduction. Customer satisfaction appears to be the focus of measure by the supply chain executives as the criteria for performance. Companies that have been able to effectively use the BSN in their supply chains have achieved the desired results. According to Slota (2002), the Fortune 500 companies were able to consolidate their departments into one integrated groups thereby reducing the service level breakdowns by 72 percent. By focusing on the customer perspective, they could use the metrics to have one customer care team and thereby present one face to the market. Before the implementation of the BSC, individuals tried to present themselves as important before a customer. The metrics were used to enhance the communication and information flow within the supply chain which was earlier perceptive and no pin-pointed actions could be taken. When BSC was implemented for their internal processes, it resulted in reducing stock mis-picks, the deficiencies were detected and the carriers were instructed only to accept perfection, and there was revitalization through out the organization. They could retain the customers who were earlier threatening to switch vendors as they could not understand the internal structure and nor were they interested. To derive the maximum benefit from the implementation of the BSC in the supply chain, it is essential to have a supply chain orientation (Hult, Ketchen, Adams & Mena, 2008). Supply chain orientation is the strategic capability of the firm. The members should be strongly inclined towards viewing the supply chain as an integrated entity and they should focus on satisfying the chain needs in an integrated way. To obtain this strategic capability, it is essential to have customer orientation, competitor orientation, supplier orientation, logistics orientation, and value-chain coordination – each of which is an important tool. Supply chain orientation thus not only affects the internal process performance but also affects the other three perspectives for overall performance. Thus a supply chain orientation benefits both at the supply chain level and the firm level. It is thus essential that managers should be trained not just in logistics but in a variety of functions. Tesco has been using the Dashboard to increase the visibility of operations across the Tesco contact centre. Tesco HSC is the global service arm of Tesco. They applied the dashboard to improve the contact centre service rendered to some 470,000 employees at different locations across the globe. The Tesco operations team used to take five days to analyze the contact center data and report the findings to the business team (Datacraft, 2009) However, with the implementation of the Dashboard, the reports are available instantaneously. The business team can now access their personalized Dashboard and get access to patterns of call. Thus the operations team is now in a position to appropriately staff the agents to meet the customer’s needs. This has resulted in operational efficiency and cost reduction while productivity levels at the contact centre has also increased. The Dashboard enables the administrators to have a holistic view of the contact centre. This is essential in the massive supply chain structure that Tesco has. The supply chain supports decision making by visually displaying in real time leading and lagging indicators in a supply chain process perspective (Strandhagen, Alfnes & Dreyer, 2006). In the supply chain, the firm derives benefit because dashboards enable access to true-time monitoring facilities at high-level. It is possible to obtain a true value chain perspective and recognition and decision making is speeded up. In the areas of purchasing and production control integrated decision making takes place. Conclusion Thus it is evident that merely having an effective supply chain is not sufficient because the inefficiencies in the system cannot be identified. For instance, customer satisfaction may go unnoticed as the parameters of satisfaction for individual customer may differ. The BSC integrates the different processes and goes beyond the financial measures. However, various authors have different opinions on including other attributes over and above what had been originally proposed by Kaplan and Norton. Some suggest that product attributes and corporate characteristics are equally important to get the right benefit from measuring performance of the supply chain. Others suggest that a supply chain orientation is essential and additionally the managers should not be trained in logistics alone but should be trained in a variety of functions. Dashboards too enhance performance in the supply chain as they enable real time visual display of lagging and leading indicators. These indicators enable the managers and the administrators to monitor performance and have an integrated decision making process. This helps to reduce waste and keep inventory levels low. However, there can be no universally accepted parameters for integrating BSC with supply chain. It has to be aligned with the strategic mission of the organization and all the process and departments have to be integrated as one group. This facilitates decision making and goes beyond the financial metrics. References Bagshaw, A. (2009). Relatively speaking. Supply Management. London: Jan 22, 2009. Vol. 14, Iss. 2; pg. 18, 6 pgs Baker, G., & Maddux, H. (2005). Enhancing Organizational Performance: Facilitating the Critical Transition to a Process View of Management. S.A.M. Advanced Management Journal. 70 (4), 43-54 Barber, E. (2008). How to measure the “value” in value chains. International Journal of Physical Distribution & Logistics Management. 38 (9), 685-698 Beasley, B., Chen, A., Nunez, K., & Wright, L. (2006). WORKING Hand IN Hand: Balanced Scorecards AND Enterprise Risk Management. 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