Supply Chain Partner Integration: A Relationship Approach - Essay Example

Supply Chain Partner Integration: A Relationship Approach Introduction Role of supply chain activities varies significantly with the change in industry structure and norms of doing business (Briscoe and Dainty, 2005). For example, construction industry being segregated from other industries due to multitude of reasons such as one-of-a-kind characteristics of the project, temporary organization structure and assembling of supply sourcing within premise of production (Briscoe and Dainty, 2005). Such unique characteristics of construction industry encourage companies to work closely with supply chain partners such as contractors, final assemblers, subcontractors and suppliers in order to address process variance. It is evident from the research work of Briscoe and Dainty (2005) that in case of construction industry, close looped relational matrix should be maintained between chain partners such as contractors, final assemblers, subcontractors and suppliers. However, Saad, Jones and James (2002) found it difficult to apply concept of Bayesian probability in order to determine how supply chain member collaboration can help companies’ to achieve product innovation or deliver products at competitive price. On the contrary, in the task, a context has been mentioned where good relationships between Tier 1 contractors, subcontractors, final assemblers, suppliers etc has been identified as key drivers that enable Tier 1 contractors to innovate and provide goods and services at prices that are competitive. It is evident from above theoretical arguments that significant amount of controversy exists regarding importance of supply chain collaboration framework. Such level of ambiguity has been influenced the researcher to take up this study and discuss the justification of mentioned statement. Discussion It has been found by the researcher that previous researchers used construction and engineering industry in order to validate efficacy of supply chain integration. Consideration of research works of Briscoe and Dainty (2005) reveals the fact that above mentioned three unique characteristics of construction industry make it challenging for companies to use supply chain integration model in order to drive business values. Therefore, the essay will discuss the mentioned statement in context to construction and engineering perspective. While doing research on the same topic, Barratt (2004) used the concept of ‘collaborative culture’ in order to explain how supply chain activities and relationship between supply chain partners can be collaborated within construction industry. According to Barratt (2004), ‘collaborative culture’ in supply chain can be developed through elements such as, 1- external and internal trust between supply chain partners, 2- transparent information exchange throughout supply chain, 3- quality of information flow, 4- communication and understanding between supply chain partners, 5- process alignment and effective cross functional activities by supply chain partners and 6- engagement of supply chain partners at level of supply chain activities. Other research scholars like Briscoe and Dainty (2005) might not used the term ‘collaborative culture’ directly rather they explored different dynamics of the term in context to supply chain management in construction industry. In such context, understanding characteristics of supply chain management and role of supply chain partners will help the study to discuss the mentioned statement in comprehensive manner. Supply Chain Management & Supply Chain Partners The concept of supply chain management (SCM) has been derived by many researchers in context to different perspectives. Consideration of research works of Naim and Barlow (2003) reveals the fact that it is very difficult to establish standardized definition of SCM because elements of supply chain activities change rapidly with the change in industry characteristics. Naim and Barlow (2003) defined SCM as outcome driven coordination between strategic activities while Barratt (2004) defined the supply chain as loop or network linked through upstream and downstream linkages. However, Mentzer et al (2001, p. 4) probably proposed most comprehensive definition of SCM as, "strategic and systematic coordination of the traditional business functions and the tactics across these business functions within a particular firm and across businesses within a supply chain, for the purposes of improving the long-term performance of the individual companies.” It is evident from the definition that SCM needs coordination between individuals or enterprises located at different coordinates of supply chain network. In context to construction and engineering perspective, there can multiple of subsets of different supply chain activities that may or may not dependent on each other. According to Cox and Ireland (2002), in case of construction industry, different structural properties of supply chain activities make it difficult for companies to formulate sourcing strategies that can help them to deliver end product in competitive price. Cox and Ireland (2002) identified some major components of construction supply chain such as construction ‘integration’, materials, professional services, equipment and labour. The following diagram can be used in order to identify different stages involved in construction supply chain. Figure 1: Construction Supply Chain (Source: Cox and Ireland, 2002, p. 411) It is evident from the above figure that construction or civil engineering firm reside in the middle between end user and material supply chain partners. The above diagram is showing only three sub components of supply chain activities of the composite material supply chain but in real construction industries, it becomes difficult for construction companies to quantify the exact numbers of sub components in supply chain. According to Cox and Ireland (2002), during construction process, requirement of end user may change and as result, new instructions might be given to construction firm. In such context, the construction firms need to adjust upstream supply chain activities in order to meet end user specifications. From supply chain partner perspectives, high degree of subcontracting is being done by construction companies because it subcontracting would decrease overall cost of sourcing for the construction company (Cox, 1999). For example, main contractors appoints supply chain partners like third party sub contractor, equipment suppliers, raw material supplier, original equipment manufacturer (OEMs), labour suppliers etc in order access resources in cost effective manner. However, extensive amount of subcontracting might raise the problem of adversarialism that can decrease margin for contractors. Cox and Ireland (2002) pointed out contractors need to access sources from different supply chain partners at every stage of supply chain such as material suppliers, final assemblers, labours, equipment suppliers etc. Working on behalf of contractor, procurement professionals are being responsible for collecting resources from different supply chain components. Procurement professionals of the construction company also plays vital role in partner selection. Traditionally, supply chain partners are being selected on the basis of multitude of factors such as, bidding price, ability deliver resources at competitive price, market reputation, previous working experience, resource capability, financial position, relationship with contractors etc (Cox and Ireland, 2002). Presence of such multitude of criteria is showing how important is supply chain partner selection in construction and engineering industry. According to Cox and Ireland (2002), every construction project is different; therefore, it is improbable that a contractor can work with standardized subcontractor network or supply chain relationship in order to address problems regarding different construction projects. In order to clarify the idea, sub component of supply chain can be separately viewed for identifying activities of specific supply chain partners. Figure 2: Sub Component of Supply Chain (Source: Ireland, 2004, p. 374) Suppose, a construction contractor needs mechanical and electrical product during constriction, then, procurement professionals on behalf of the contractor will source the supply from specialist mechanical and electrical sub contractor. On the other hand, specialist mechanical and electrical sub contractor will source the supply from mechanical and electrical component supplier or original equipment manufacturer. From final output perspective, throughout the supply chain, raw materials flow from mechanical and electrical component supplier or original equipment manufacturer to client. From monetary value perspective, throughout the supply chain, margin is being distributed from construction firm to mechanical and electrical component supplier. Cox and Ireland (2002) argued that problem of adversarialism can not only decrease the strength of supply chain network but also encourage conflicts between supply chain partners. On the other hand, lack of collaboration and relationship based on trust and transparency between supply chain partners are being directed by multitude of factors such as, adversarialism and dissatisfaction of contractor due to distribution of profit margin through supply chain, lack of communication between supply chain partners, gap in the knowledge regarding project objectives and information hiding by clients (Barratt, 2004). Ireland (2004) and Cox and Ireland (2002) identified three problems that are being directed by lack of collaboration and relationship between participants in construction supply chain. Problem 1- presence of adversarialism and dissatisfaction of contractor due to distribution of profit margin through supply chain increases conflict between supply chain partners. As a result, completion of construction projects gets delayed due to reluctant resource support from partners. Problem 2- , lack of communication between supply chain partners creates ambiguity among partners regarding the actual need of the project. As a result, improper sourcing of material being done by partners which increases propensity to commit error for the contractor. Problem 3- gap in the knowledge regarding project objectives increases problems for supply chain partners to realize actual requirement of contractor or end users. Lack of knowledge is being also resulted from absence of collaborative environment and lack of effort from contractors to engage partners in the construction projects. These three problems collaboratively increase duration as well as cost of sourcing in the project. Due to increased cost of the project and compromised quality of sourcing, it becomes practically impossible for Tier 1 contractors to innovate and provide goods and services at prices that are competitive (Cox and Ireland, 2002; Sanderson and Cox, 2008). Therefore, it can be surmised that absence of good relationship between subcontractors and suppliers can negatively affect outcome of the business for tier 1 contractor. In order to strengthen the argument being presented in this case study, the researcher will refer existing published case material being presented by other scholars. Supply Chain Collaboration While working on research topic related to supply chain integration, Briscoe and Dainty (2005) used thee client organizations from vehicle manufacturing, public transport and telecommunications sectors. These three client organizations were more into procurement activities and they had years of experience in handling complex constructions. With the help of three client organizations, Briscoe and Dainty (2005) examined 9 different supply chain activities for projects ranging from small level maintenance contracts to construction of company headquarters. Briscoe and Dainty (2005) found that success of the project is being directed by the directness of communication paths between second-tier subcontractors and main contractors. Two types of communication strategies are being identified as key success drivers to maintain good relationship between supply chain partners. Strategy 1- Briscoe and Dainty (2005) found that both public transport and telecommunications client prefer to engage contractor and subcontractors in lengthy negotiation process. By negotiating with contractors and subcontractors over long period of time, active dialogue exchange being done among partners. From client side, pre-contract meetings, weekly site meetings, pre-site meetings are being done in order to communicate directly with contractors, subcontractors and third party vendors. Briscoe and Dainty (2005) pointed out that direct communication approach helps both public transport and telecommunications client to clarify project objectives to supply chain partners and develop good relationship and environment of collaboration between contractors, subcontractors, final assemblers and suppliers. Strategy 2- Briscoe and Dainty (2005) found that vehicle manufacturing client organization do not directly communicate with subcontractors except in case of emergency. In such communication system, main contractor plays the role of negotiator between client and sub contractors while subcontractors are not being involved prior to start of the project. Once a week meeting is being conducted between contractor and client while outcome of such meeting are reluctantly being communicated to sub contractors. While researching on car manufacturing, Womack, Jones and Roos (2007) also found that vehicle manufacturing client do not keen to maintain long term relationship with contractors and subcontractors. On the other hand, according to Briscoe and Dainty (2005), both public transport and telecommunications clients either use formal or informal contractual partnerships in order to establish long term relationship with supply chain members. It has been found that long term stable partnership between supply chain partners provide multitude of benefits to public transport and telecommunications clients such as decrease in cost of sourcing, ability deliver final output at competitive price and achieve innovation. On contrary, vehicle manufacturing client select supply chain partner through competitive tendering and prefer to maintain the relationship with supply chain partners for short frame of time. By doing so, vehicle manufacturing client believe supply chain partners will feel the pressure of delivering good performance because otherwise their contract might get terminated. Although, Harland (1996) stated that establishing long term relationship between supply chain partners is always beneficial for contractors but research work of Briscoe and Dainty (2005) reveals the fact that duration of partnership with supply chain members depends of business objective of clients. In such context, case study presented by Sanderson and Cox (2008) can be used innovation can be directed by good relationships with subcontractors and suppliers. In the case study, Sanderson and Cox (2008) analyzed supply chain dynamics for UK naval Shipbuilder. As part of the study, electrical cables delivery to UK naval Shipbuilder is being diagnosed by Sanderson and Cox (2008). Four different supply chains were being identified for supplying equipments related to valves, heating, ventilation and cooling (HVAC). Four different supply chains were selected for 4 different collaborating companies like one ship-repairer, two shipbuilders and one components supplier (Sanderson and Cox, 2008). Ayers (2004) stated that complexity of supply chain gets increased with crisscrossing of different supply chain activities. In order to reduce complexity in understanding dynamics supply chain activity of UK naval Shipbuilder, Sanderson and Cox (2008) reduced supply chain component to be investigated. It has been found by Sanderson and Cox (2008) that unpredictable pattern of demand and uncertainty in demand forecasting makes it essential for contractors to establish long term and collaborative relationship with supply chain members. In context to UK shipbuilding industry, incremental adjustments are needed throughout project life time; therefore, design and build schedule needs continuous adjustment in order to meet client requirements in efficient manner. In order to counterbalance overlapping of construction activity, contractors need to establish relationship with supply chain members. For example, due to above mentioned reasons, the Ship Company experiences challenge in forecast demand accurately. In such context, the contractor can address the uncertainty through multi channel sourcing from trusted subcontractors. Therefore, establishing good relationship with other supply chain members’ increases flexibility of the contractor to meet demand uncertainty. In the case, Sanderson and Cox (2008) identified certain characteristics’ of ideal agile supply strategy such as increase in buffer capacity, increase in buffer stock of modular inventory, eradication of redundant sourcing activities, intelligent consultation etc. Interesting fact is that Blanchard (2010) also found that intelligent consultation has became important part of modern supply chain procurement strategy of companies. From the collaborative relational approach, it can be said that each characteristic of ideal agile supply strategy is being directed good relationship between Tier 1 contractors, final assemblers, subcontractors and suppliers. Consideration of research works of Blanchard (2010) and Cox and Ireland (2002) reveals the fact that full supply chain integration might not be achieved on permanent basis due to change business environment and diversity in business objectives of companies. Rather, it is better to assume that good relationship between supply chain members can contribute to partial integration of supply chain. Conclusion This essay has assessed the mentioned statement in the task with the help of published research works of scholars. Surprisingly, the study has found significant amount of contradiction among scholars regarding standard definition of supply chain integration. As sub part of the study, two case studies are being used in order to test validity of argument mentioned in the case study. Going through literature regarding the research topic, it has been found by the researcher that the statement is valid in most cases. However, validity of the statement changes in relative manner in context change in business objective and performance goal of different companies. For some industry sector, establishing long term partnership and collaborative relationship with supply chain members might decrease scope of innovation or exceed performance goals. Despite such exceptions, it has been found by the study that good relationships with subcontractors and suppliers enable Tier 1 contractor to innovate and provide goods and services at prices that are competitive. Although, the study has focused on construction and engineering perspective but validity of the statement can even be tested in context to other industries. In conclusion, it can be said that collaboration and good relation with supply chain members provide much needed flexibility to contractor to deal with macro and micro environmental uncertainties. Reference List Ayers, J. B., 2004. Supply chain project management: A structured collaborative and measurable approach. Florida: CRC Press LLC. Barratt, M., 2004. Understanding the meaning of collaboration in the supply chain. Supply Chain Management: An International Journal, 9(1), pp. 30 – 42. Blanchard, D., 2010. Supply chain management best practice. 2nd ed. Hoboken, N.J: John Wiley. Briscoe, G. and Dainty, A. R. J., 2005. Construction supply chain integration: An elusive goal? Supply Chain Management: An International Journal, 10(4), pp. 319-326. Cox, A. and Ireland, P., 2002. Managing Construction supply chains: a common sense approach. Engineering Construction and Architectural Management, 9(5), pp. 409-418. Cox, A., 1999. Power, Value and supply chain management. Supply Chain Management, 4(4), pp. 167-175. Harland, C. M., 1996. Supply Chain Management: Relationships, Chains and Networks. British Journal of Management, 7, March, pp. 63-80. Ireland, P., 2004. Managing appropriately in construction power regimes: Understanding the impact of regularity in project environment. Supply Chain Management, 9(5), pp. 372-382. Mentzer, J. T., DeWitt, W., Keebler, J. S., Min, S., Nix, N. W., Smith, C. D. and Zacharia, Z. G., 2001. Defining supply chain management. Journal of Business Logistics, 22(2), pp. 1-25. Naim, M. and Barlow, J., 2003. An innovative supply chain strategy for customized housing. Construction Management and Economics, 21, pp. 593-602. Saad, M., Jones, M. and James, P., 2002. A review of the progress towards the adoption of supply chain management relationships in construction. European Journal of Purchasing and Supply Management, 8, pp. 173 – 183. Sanderson, J. and Cox, A., 2008. The challenges of supply strategy selection in a project environment: Evidence from UK naval shipbuilding. Supply Chain Management: An International Journal, 13 (1), pp. 16-25. Womack, J. P. Jones, D. T. and Roos, D., 2007. The machine that changed the world: How lean production revolutionized the global car wars. London: Simon and Schuster. Read More