Rethinking supply chain strategy as a conceptual system

Abstract

Changes to the strategy, context or environment of a business unit may necessitate a revision of its supply chain strategy. However, rethinking a supply chain strategy is not an easy problem, and has no clear answer in the specialized literature. Some fundamental questions about supply chain strategizing—i.e., the process of doing supply chain strategy—have been largely ignored, while others have been answered with overly-simplistic type-and-match approaches of unclear validity. In this paper, we present a holistic approach to supply-chain strategizing, called Conceptual System Assessment and Reformulation (CSAR), developed through a series of collaborative management research projects over a decade. This paper presents the key ideas of CSAR and explains how it can be used to capture, evaluate and reformulate the supply chain strategy of a business unit. We argue that these ideas can serve as a step towards a theory of supply chain strategy. Finally, we illustrate the practical merits of CSAR by presenting the case of a large world-class corporation that used the approach as a starting point for an initiative to rethink the supply chain strategy of most of its business units.

Introduction

The importance of supply chain strategy (SCS) has been recognized from the early days of supply chain management (SCM). Stevens (1989) suggested that an integrated supply chain strategy can help a company balance the conflicts among its functions to respond to issues such as high supply chain costs, high inventory levels, poor customer service, inter-departmental conflicts and the challenge of goal restructuring. Narasimhan et al. (2008, p. 5234) assert that, “in the competitive global environment in which firms operate today, developing a successful supply chain strategy is critical to a firm's long-term competitive success.” Supply chain strategies can not only help managers “improve their companies' integration with suppliers and customers” (Cigolini et al., 2004, p. 8), but also enhance the business performance of the firm and its supply chain partners (Roh et al., 2014). Supply chain strategy is considered “a prerequisite” for supply chain management in any firm, since “top performers have a clear supply chain strategy aligned with overall business objectives and customer requirements” (Varma et al., 2006, p. 226).

Supply chain strategy is regarded as “an increasingly important topic” (Morash, 2001, p. 50). Recent studies have examined supply chain strategies in particular industries—such as food (Lyons and Ma’aram, 2014) and fashion (Brun and Castelli, 2008, Kim, 2013)—as well as the relationship between supply chain strategy and other organizational functions. Juttner et al. (2010) explore the relationship between supply chain and marketing strategies and provide a framework to describe how the two strategies together can contribute to the business strategy. Blackman et al. (2013) elaborate how supply chain strategy influences finance through the case study of Motorola's global supply chain. Zhou et al. (2014) describe the implications of the quality of information for the supply chain strategy. Supply chain strategy can be seen as an umbrella for operations strategy, and has important implications for several aspects of operations strategy. Supply chains, as the producers and conveyors of products, have a close relationship with product design: research shows a strong connection between supply chain strategy and product complexity (Novak and Eppinger, 2001), product life cycle (Aitken et al., 2003, Patil et al., 2010), and suggests that products and supply chains should be designed simultaneously (Fine, 1998). Supply chain activities also have strong implications for a company's environmental footprint; Wu et al. (2014) show, empirically, that an alignment between supply chain strategy and corporate environment strategy can improve firm performance. Operations Management researchers have been actively exploring the role of human behavior in operations issues (Bendoly et al., 2006, Boudreau et al., 2003, Boyer et al., 2005). These findings are relevant for the topic of supply chain strategy as well. Some of the quintessential supply chain phenomena, like the bullwhip effect, are shown to be caused by human biases and heuristics (Croson and Donohue, 2006).

Typically, the studies of supply chain strategy explore the links and the performance implications of integration between a focal firm and its customers and suppliers. Much less attention is paid to the integration among the supply chain-relevant¹ functions within a firm. Recent empirical evidence suggests that within-firm integration—i.e., alignment between corporate strategy, supply chain strategy, and supply chain capabilities—is positively associated with integration between the focal firm and its supply chain partners (Ralston et al., 2015), prompting the study's authors to argue that “internal integration [within the firm] should occur before external integration” (p. 56). Cooper and Ellram (1993) also suggest that strategic intra-firm integration is an important characteristic of the firms taking the supply chain perspective.

Despite its importance and relevance, supply chain strategy is often neglected in practice. An international survey by Harrison and New (2002, p. 264) found that more than half of the supply chain strategies of over 250 firms across diverse sectors “were either non-existent, patchily defined with poor definition …or had only some elements defined and lacked detail”. A decade later, Dittmann (2012, p. 4) found through “a survey on the state of supply chain strategy” that, although 62% of respondents “said that they have a supply chain strategy”, only 18% had “a documented, multiyear” supply chain strategy. Narasimhan et al. (2008, p. 5232) have noted that firms do not always “realize the strategic role” of supply chain management, and as a result, tend “to exclude SCM from the strategic debate.” Having “an unclear understanding of SCM strategy …causes firms to miss exploitable opportunities to increase competitive advantage” (Narasimhan et al. (2008, p. 5232)). The need for supply chain strategy is not limited to large organizations. Sharifi et al. (2013) found that small and medium-sized enterprises (SMEs) typically fail to “consider their supply chain strategy before product introduction” and “consequently experience supply chain problems that are likely to be detrimental to the firms' growth potentials.”.

One reason for this may be that “the formulation of a supply chain strategy” can be “extremely difficult” (Kotzab et al., 2003, p. 348). Because of its numerous functional interdependencies (Stevens, 1989), a supply chain is akin to a complex system; management theory shows that such systems are indeed difficult to design (Rivkin and Siggelkow, 2007). Varma et al. (2006, p. 226) elaborate on this by noting that since supply chains “comprise a plethora of activities from sourcing raw material to delivering the finished product to the customer, formulating a strategy for SCM becomes a complicated task in itself”. This can lead to a “disagreement over the choice of an appropriate supply chain strategy” (McAfee and Glassman, 2002, p. 7), which is unlikely to be resolved without a systematic effort when designing supply chain strategies (Rivkin and Siggelkow, 2007). The difficulty of integration is one of the reasons why Cooper and Ellram (1993) assert the need for channel leadership as a key characteristic of the supply chain perspective.

Recognizing this challenge, Stevens (1989, p. 5) asserts that “a structured approach” is “required” for developing supply chain strategy. The need for a structured approach or a process for developing strategy is not unique to supply chain management. The importance of decision processes in firms has been recognized for over half a century, dating back at least to the pioneering work of Cyert and March (1963). Left to their own devices, firms often engage in “unstructured” strategy processes (Mintzberg et al., 1976). However, the more “structured approaches,” as called for by Stevens (1989), have practical benefits. An extensive review of the strategy process literature (Hutzschenreuter and Kleindienst, 2006) shows a positive relationship between the use of structured strategy formulation approach and the performance of the decision made using the approach. In the SCM literature, Fine (2000, p. 213) underscores the importance of a structured approach by calling supply chain design the “ultimate core competency of an organization.” Yet, the SCM field is characterized as having an unresolved need for a “framework upon which to develop a supply chain strategy” (Martinez-Olvera and Shunk, 2006, p. 4511). The questions, such as how to capture, evaluate, or reformulate a given supply chain strategy have largely been unanswered in the SCM literature. Providing actionable answers to these questions would make it easier for practitioners to engage in supply chain strategizing and to help supply chain strategy attain the prominence it deserves.