Journal of Industrial Technology • Volume 20, Number 2 • February 2004 to April 2004 • www.nait.org

Volume 20, Number 2 - February 2004 to April 2004

Supply Chain : Strategic Factors From The Buyers’ Perspective By Dr. Ronald L. Meier, Dr. Michael R. Williams, and Mr. Rodger B. Singley

Peer-Refereed Article

KEYWORD SEARCH

Industrial Management Quality Research

The Official Electronic Publication of the National Association of Industrial Technology • www.nait.org © 2004

1 Journal of Industrial Technology • Volume 20, Number 2 • February 2004 to April 2004 • www.nait.org Supply Chain Management: Strategic Factors From The Buyers’ Perspective By Dr. Ronald L. Meier, Dr. Michael R. Williams, and Mr. Rodger B. Singley

Dr. Ronald L. Meier has been in the Technology Department at Illinois State University since 1994. Introduction And Overview changes, as competition His scholarly work focuses on organizational com- is characterized as evolving becomes more global, it is no longer petitiveness issues, primarily oriented toward en- terprise risk and . His teach- away from its traditional focus on company vs. company but supply chain ing responsibilities include graduate level project single exchange transactions and vs. supply chain” (Henkoff 1994). management courses and the oversight and deliv- ery of a six-course series of project management toward an emphasis on creating and Properly implemented, SCM can courses designed for business and industry pro- maintaining longer-term buyer-seller positively impact many functions and fessionals. Dr. Meier has published or co-published over 50 papers in various technical and manage- relationships. These strategic relation- outcomes of the including ment journals. ships generate managed supply chains. quality, customer responsive- For the purpose of this article a man- ness and resultant satisfaction, manufac- aged supply chains encompasses all the turing cost , product and market activities associated with the flow and flexibility, and macro performance transformation of from raw outcomes including market share and materials to the end user, as well as the profitability. associated information flows. Materials and information must simultaneously Purpose of This Study flow both up and down the supply The purpose of this study was to chain to leverage strategic positioning expand the knowledge base regarding and to improve operating efficiency. planning, implementation, and ongoing operation of Supply Chain Manage- However, to date, our knowledge and ment (SCM) initiatives. Other purposes Dr. Mike Williams is a professor in the Depart- understanding regarding effective of this study included development of ment of at Illinois State University and Director of the Professional Institute. He supply chain management practice is information and recommendations to received his Ph.D. in marketing from Oklahoma limited to case studies and anecdotal aid in improving their State University. In addition to authoring numer- ous books, his work has also been published in documentation, which provides little in existing SCM practices. More specifi- Journal, International Journal the way of reliable, theory-based tools cally, this study addressed the follow- of Purchasing and , Journal of and Sales Management, Jour- and guidance for managers. Indeed, the ing four objectives. nal of Business and Industrial Marketing, Journal 1. An in-depth examination of the of Industrial Technology, Competitiveness Review, importance of the study reported herein Journal of Engineering Education, and the Journal was emphasized at the CAPS 2001 role of in SCM of Marketing Theory and Practice. North American Executive Roundtable 2. An understanding of the process where Chief Purchasing Officers from and environment of Fortune 500 companies voted the formation development of supply chain measures 3. An identification of organiza- and models to be the most important tional characteristics influencing topic for future research (Hendrick & partnership formation and Ogden 2001). The development and operation subsequent application of valid, theory- 4. The identification of potential based measures and models are critical conflict areas in partnership if companies are to establish and formation and operation effectively manage supply chains. Overview of This Study Supply Chain Management (SCM) is a Due to page and publication limitations Rodger B. Singley is an associate professor of Mar- priority topic for contemporary social, the remainder of this paper examines keting at Illinois State University since 1989. His teaching areas include International Marketing, economic, and industrial technology only the first phase of a two-phase Sales Management, and Management with multi-year study. This first phase students at both the undergraduate and graduate researchers at the global level (Dodgson levels. His scholarly interests include international 2001). As stated by a Vice- President of investigated the evolving concept of business issues, fraud, supply chain management, and project management. the Boston Consulting Group, “As the supply chain management (SCM) and

2 Journal of Industrial Technology • Volume 20, Number 2 • February 2004 to April 2004 • www.nait.org its current practice in contemporary Another frequently researched compo- puter Discount Warehouse, Delco business strategy. Exploratory in nent of SCM is the exploration and Remy, Delphi Automotive, Detroit nature, this phase worked with support- understanding of the motivations for/ Diesel, Detroit Edison, Electromotive ing industry partners and their supplier benefits of engaging in SCM. The Division – General Motors, Ford Motor and purchasing managers and univer- literature was developed from the areas Company, Growmark, Mitsubishi sity academicians to identify and study of quality control and expedient Motors of North America, Northern the key factors in strategically managed delivery (Rich and Hines 1997; Davis Automotive Systems, Rhon, Sherwin- supplier-buyer relationships. The 1993); lean/agile manufacturing Williams, State Farm Insurance, and results from this first phase were (Womack and Jones 1996); shortened Verizon. Academic institution partici- twofold. First, the results were used to product life cycles (Fine 1999); and pants included representatives from develop a comprehensive set of increased domestic and global competi- Appalachian State University, Arizona descriptive item statements for each of tion (Blackwell 1999; Tyndall 2000). State University, Ball State University, the constructs coming out of the Q-sort Reported benefits of research in SCM Bradley University, Illinois State analysis. Second, the results yielded included decreased order cycle time University, Northern Kentucky Univer- information about perceived relation- (Sheridan 1999); reduced costs/ sity, University of Southern Missis- ships between the constructs and increased efficiency (Christopher and sippi, and East Texas State University. variables for the purpose of generating Ryals 1999; Quinn 2000); improved These participants were selected based hypotheses describing the posited product delivery and responsiveness upon their expertise and interest in relationships among the variables (LaLonde and Masters 1994); and developing better evaluative and comprising the conceptualized model revenue and profitability growth predictive tools for monitoring and of supply chain management: the (Timme & Timme 2000; Quinn 2000). controlling efficient and effective antecedents, moderators, and out- Finally, both bridges and barriers to business partner relationships. comes. Phase two began in August implementing supply chains have 2003. During phase two the perceived received a great deal of research As illustrated in Figure 1 on page 4 and relationships between the constructs attention (i.e., Monczka and Morgan discussed in detail below, this study and variables are being tested to 1997; Blackwell 1999; Stank, began with a qualitative investigation to validate the researcher’s perceptions of Daugherty & Ellinger 1999). explore and delineate actual supply chain the hierarchical relationships that practices. The first phase of research, constrain the choice of supply chain Existing research begins to provide a consistent with the tenets of exploratory partners. These results will be reported description of the nature and environ- research and scale development in a future manuscript. ment of SCM along with the motiva- (Churchill 1979; Nunnally 1978), tions for and benefits of engaging in utilized qualitative investigation tech- Review of Related Research SCM. What is lacking is a holistic and niques including literature review, As both research and practice in SCM systematic investigation of supply chain observation of existing practices, focus have increased, the knowledge base has practice. Both manufacturing firms and groups, and in-depth interviews. This also grown. A historical perspective their consultants recognize the need for qualitative investigation was designed to illustrates one significant and necessary additional knowledge in this area. For identify potential variables functioning as stream of literature is concerned with example, a focus group participant antecedents, moderators, and outcomes establishing the nature and scope of (April 24, 2003) from Caterpillar of successful supply chain management. SCM practice. There exists diversity in , Decatur, IL stated that in the the realm of supply chain management view of his logistics teams, the develop- Literature Review, Observa- research as some researchers have ment of assessment tools for determin- tion, and Interviews focused mainly upon the definition of ing the effectiveness of strategic Phase one of this study was exploratory the supply chain (i.e. Christopher partnerships was a critical issue. in nature and consisted of three 1992) while others concentrate upon primary components: (1) study of both the definition of the supply chain Methodology published research findings and along with the In line with the multiple objectives of literature on inter- and intra-organiza- thereof (Mentzer 2001; Dodgson 2001; this study, three focus groups were tional relationships and supply chain Crowley & Domb 1997). Closely utilized to identify and validate the management practices, (2) observation related is research into the overall criteria for successful SCM relation- of actual supply chain management makeup and environment of SCM ships as perceived by suppliers and practices in business and industry, and including the structure, processes, and buyers. Each focus group was com- (3) interviews with supplier and components (Dyer 2000; Mariotti prised of supply chain practitioners purchasing managers. The archive of 1999; Lambert et al 1998; Cooper, from business/industry and academia. materials assembled for the initial Lambert and Pagh 1997). Business and industry participants qualitative investigation included included representatives from Archer relevant items from principal publica- Daniels Midland, Caterpillar, Com- tions and sources such as:

3 Journal of Industrial Technology • Volume 20, Number 2 • February 2004 to April 2004 • www.nait.org

• International Journal of Physical Distribution and Logistics Figure 1. Qualitative Research Methodology • Journal of Business Logistics • Supply Chain Management: an International Journal • Industrial • Supply Chain Management Review • Institute for Supply Management (ISM) [formerly the National Association of Purchasing Management] • Center for Advanced Purchasing Studies (CAPS)

Initial analysis of the data collected in this formative phase was subjected to a series of commonly accepted and recommended qualitative analysis techniques. First, the various comments and observations were content analyzed by the principle investigators to establish common items (Kerlinger 1986). measures are central to the latter phases which a large number of ideas were Common items were then subjected to a of this research designed to explicate first generated and then sorted by series of Q-Sort analyses. Q-sort is a the nature and magnitude of associa- group members into categories to form form of qualitative factor analysis for the tion and influence among the subject topical content groupings. Subsequent purpose of sorting the various observed variables. iterations of affinity analysis were used items into common categories that will to further flesh-out each of the previ- translate into the constructs and variables A supply chain model describing ously established groups to form a tree relevant to subsequent stages of this posited relationships between the diagram depicting the hierarchical research (Kerlinger 1986). For the variables was derived through the use relationship of each category and the purpose of maximizing external validity of Hoshin relation analyses and content comprising each of the more of the results, Q-sort analyses was interrelationship digraphs to parse out macro categories. conducted by knowledgeable research the conceptualized nature and order of scholars and managers from both relationships between the variables and Relational Analysis and Diagrams (See purchasing as well as supplying firms. constructs (Bergman and Klefsjo Figure 2) were then used to explicate 1994). With the Hoshin model as a and illustrate the dependency relation- Item Statements and Concep- framework, secondary research was ships between the primary categories tual Model conducted to establish sound and established in affinity analysis. Rela- Using the variables and constructs theoretically justified explanations of tional analysis calls for the broader, derived from the Q-sort analyses as the conceptual model. topical content groupings to be sorted their subject targets, focus group by order of interdependence with each respondents completed a series of Analysis Techniques of the other topical content groupings Hoshin Analyses (Cowley and Domb Hoshin Analysis: The Process to create a suggested ordering for 1997). Hoshin analysis is an accepted The tools utilized in the Hoshin process presentation. That is, topical content qualitative analysis technique for have been adopted from behavioral groups having the most causal relation- organizing and ordering large amounts science, operational analysis, optimiza- ships would logically be presented of qualitative data (Bergman and tion theory, and and include before groups having fewer causal Klefsjo 1994). First, multiple rounds of (1) affinity analysis, (2) relationship inter-dependencies. Hoshin affinity analyses were con- diagrams, and (3) tree diagrams ducted in order to generate a compre- (Bergman & Klefsjo 1994). Affinity Outcomes of the Hoshin hensive set of descriptive items for analysis is also known as the K-J Analysis Process each of the targeted variables and Method after its Japanese originator Due to space limitations, the remainder constructs items. These descriptive Jiro Kawakita. of this manuscript will focus on SCM items became the initial item pool for success criteria from the perspective of use in developing valid measures of An affinity analysis was done with a buyer evaluating a potential supplier. each variable (Churchill 1979). Valid each of the three small focus groups in A similar set of criteria was identified

4 Journal of Industrial Technology • Volume 20, Number 2 • February 2004 to April 2004 • www.nait.org from the perspective of a supplier plier” that would predict an were inherent to being able to predict evaluating a potential buyer. This later effective business relationship?] an effective business relationship. set of criteria will be examined in a subsequent manuscript. Each member of the group then This step provided a foundation for the proceeded to generate as many items as main topical areas to be targeted for For this segment of the study a Hoshin possible in 15 minutes. Eighty-five future survey item pool development. analysis was conducted with one of the unique item statements were generated. Further analysis delineated the content practitioner/academician focus groups At this point, the focus group members of each thematic area, developed a (N = 9). This group was asked the were asked to group the items by corresponding tree diagram, and following question to help set the stage common theme. Then each grouping of established the order of dependency for generating items. items was given a name to establish a among the thematic areas. The Hoshin broader-based theme. As shown in process further refined the insight into [As a Buyer – What would be the Tables 1 - 11 the sorting and grouping what specifically should be included in list of (factors, items, attributes) of a process yielded eleven fundamental the survey item pool and established potential channel partner “Sup- thematic areas that the group believed the most critical thematic areas to

Items Items Items

Has Relevant Technical Capabilities Has Compatible Culture/Values Communicates Status Of Order Information Uses Compatible Information Technology Respects Confidentiality Communicates Well With Plant & Corporate Staff Invests in Research & Development Accepts Responsibility Provides Accurate Information Has Relevant Technical Knowledge Demonstrates Positive Management Skills Demonstrates Responsiveness Maintains a High Level of Technology Has a Positive Attitude Streamlines Business Transactions Makes Decisions Quickly Table 9. Effective Communications Constantly Analyzes Performance Data & Information Demonstrates Ability to Evolve Provides Effective Cross-Company Measurement System Behaves Professionally Engages in Ethical Practices Items Table 1. Product and Information Technology Provides an Atmosphere of Continuous Improvement Provides Quality Products and Services Regularly Reviews Performance & Capabilities Strives For Zero Defects Seeks Overall Productivity Improvement Items Table 5. Management Provides Easy Return Policy Utilizes Protective Packaging Reacts to Changes in My Business Supply Chain Partners Jointly Set Strategic Directions Facilitates Networking w/other Customers & Partners Items Performance Measures Projected Into The Future Assists Us to Expand Our Sales Provides Sales Growth Potential Has Desire to Partner Rather than Just Provide Posses Good Production Facilities Table 10. Quality Demonstrates Commitment to Customer Manages Change As A Critical Success Factor For The Is Accessible Entire Supply Chain Thinks Creatively Manages Key Product and Delivery Processes Items Has a Long-term Perspective Helps Manage Partnering Interactions and Processes Has Clear and Understandable & Product Provides Flexibility Information Table 2. Partnering Capability Employs a Skilled Workforce Responds Quickly To Requests For Information Possess Volume Flexibility Provides Helpful Engineering Support Provides Multiple Items I Need Recognizes Their Strengths Items Is Scalable Understands Their Limits Provides Key Market/Industry Information Maintain A Good Credit Rating Table 6. Production Capabilities Understands The Market Establishes A Reliable Record Of Business Performance Cooperatively Determines Short- and Long-Term Keep The Buying Firm In A Strong Competitive Position Business Requirements Within Its Industry Items Builds Relationships With Customers Supply Chain Partners Use Similar Financial Measures Ships Materials With My Target Date in Mind Pay Suppliers Promptly Provides Reliable Delivery Table 11. Customer Service Is Financially Stable Possess Broad Geographic Delivery Capabilities Pays On Time Achieves Accuracy in Shipments Has Financial Strength Is Knowledgeable in Logistics Is Effective in Supply Chain Management Table 3. Financial Strength Table 7. Logistics Capabilities

Items Items Practices Fair Pricing Representatives Have A Good Knowledge Of My Practices Lean Management Business Engages in Continuous Cost Improvement Has Competent Sales Representatives Understands Total Costs Sales Force Is Honest Provides Economic Advantage to Partnering Sales Force Is Reliable Manages-in Cost Reductions Is Willing To Do Things Differently Is Easy To Work With Table 4. Value-Based Pricing Willing To Change Is Effective In Problem Resolution

Table 8. Sales Representation

5 Journal of Industrial Technology • Volume 20, Number 2 • February 2004 to April 2004 • www.nait.org target initially. Figure 2 illustrates the partnerships of the people comprising this buyer- results of the relationship or depen- • Identification of organizational seller relationship did not understand dency sequencing activity. characteristics that constrain the the implications of exactly what was choice of supply chain partners meant by becoming a “partner.” Many In a step-wise fashion, the focus group organizations were concerned with the participants were asked to consider the Discussion And Implications legal ramifications of the term “part- relationships among all thematic areas. In the late 1980’s and early 1990’s, ner.” Therefore, the term partnership Is there a relationship? And if so, is one suppliers sought to develop partner- has taken a backseat to the three types thematic area more dependent on the ships with customer firms. Marketing of buyer-supplier relationships that other? Arrows were drawn between and sales managers asked their have evolved since the late 1980’s. At thematic areas that were related, with workforces to become “partners” with first, transactional relationships the arrow indicating the direction of their key suppliers. Nonetheless, many appeared, then collaborative and influence. For example, if an arrow pointed from “leadership management” to “effective communication” it was an Figure 2. Interrelationship Diagraph of Grouped Items indication that the focus group believed the thematic area “effective communi- cation” was related to and dependent upon topics or items in “leadership management.” Overall, the more arrows leading from a thematic area, the more it was considered fundamen- tal and influential to the other thematic areas. Figure 2 suggests that the topics of “leadership management,” “product information technology,” and “partnering capability” were the most highly related and influential topics as they had the highest number of arrows leading from them. These areas became the primary targets for initial investiga- tion and analysis. The results of the Interrelationship Diagraph are shown in Table 12. This table lists the items in their prioritized order of dependency. Outcomes Three major outcomes of this study are identified below. Each of these out- comes delivers a critical element or piece of the puzzle to aide future Table 12. Dependency Rankings of Partnering Items Used to Predict Effective studies with the development of supply Business Relationships chain measurement and benchmark tools. This study also furnished ITEM OUT ARROWS IN ARROWS supporting documentation to explain Leadership Management 10 0 the hierarchical relationships among Product Information Technology 8 2 the various thematic content areas. Partnering Capability 7 2 • Identification of the thematic Financial Strength 5 2 content areas that will enable the future development of Effective Supply Chain Management 4 6 benchmarking tools and allow Quality 4 4 organizations to determine Production Capabilities 3 5 suitable supply chain partners Effective Communications 3 3 • Identification of intra-organiza- Customer Service 2 7 tional characteristics that enable and/or impede the formation and Value-Based Pricing 1 8 operation of supply chain Sales Representation 0 8

6 Journal of Industrial Technology • Volume 20, Number 2 • February 2004 to April 2004 • www.nait.org alliance relationships, and finally technology, partnering capabilities, Some Issues of Measuring Their supply alliances (Mariotti 1999, Dyer companies’ financial strength, and Extent and Outcomes Experiences 2000). organizational quality. Teaching faculty from Europe and Asia. Retreived at both community colleges and univer- March 15, 2002, >From http:// The findings from the Hoshin analysis sities must actively engage students in www.nsf.gov/sbe/srs/nsf01336/ discussed earlier support both individual and collaborative problem p1s8.htm Mariotti’s and Dyer’s work. The item solving, analysis, synthesis, critical Dyer, J. H. (2000). Collaborative groupings of “product and information thinking and reflections to real world Advantage. N.Y., N.Y. Oxford technology,” “financial strength,” and situations. As a result new curriculum University Press, 2000, pp.42-3. “value-based pricing” support the materials must be proposed, developed, Fine, C. H. (1999). Clockspeed: transactional perspective. The item and implemented to expand these Winning Industry Control in the groupings of “partnering capability,” management aspects related to supply Age of Temporary Advantage. “effective communications,” “sales chain development. Reading, MA: Perseus Books. representation,” and “customer service” Hendrick, T. E. & Ogden, J.(2001). relate directly to Dyer’s description of References Chief Purchasing Officers Compen- collaborative and alliance relationships. Bergman, B. and B. Klefsjo (1994). sation Benchmarks and Demo- Additionally, these four groupings Quality: From Customer Needs to graphics: A 2001 Study of Fortune support the findings of a May, 2000 Customer Satisfaction. London: 500 Firms. Center for Advanced conference presentation by Stanley and McGraw Hill Book Company Purchasing Studies. 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Vol. 9, No. 2, pp. 1-19. organizational characteristics is a (February), pp. 64-73. Mariotti, J. L. (1999). Is necessary step in the improvement of Cooper, M. C.; Lambert, D. M. & The Way To Go. Supply Chain supply chain practice. Outcomes of this Pagh, J. D. (1997). Supply Chain Management Review. Spring 1999. study are useful not only in the devel- Management: A New Name for Mentzer, T. (2001). Supply Chain opment of future models and Logistics. International Journal of Management. California: Sage. benchmarking tools, but can also be Logistics Management. Vol. 8, No. Monczka, R. M. & Morgan, J. P. used to improve existing supply chain 1, pp.1-13. (1997). What’s Wrong with Supply management tools. Cowley M. and E. Domb (1997) Chain Management? Purchasing. Beyond Strategic Vision: Effective January 16. Additionally, the findings from this Corporate Action with Hoshin Nunnally, J. C. (1978). Psychotremetric study provide useful information for the Planning. Boston: Butterworth- Theory. New York: McGraw Hill improvement of curriculum concerned Heinemann. Book Company with supply chain management. Under- Davis, T. (1993). Effective Supply Quinn, F. J. (2000). The Clockspeed standing the criteria leading to supply Chain Management. Sloan Manage- Chronicles. Supply Chain Manage- chain success provides the foundation ment Review. Summer, pp. 35-46. ment Review. Vol. 3, No. 4, pp. 60-64. for courses that examine: leadership Dodgson, M. (2001). Strategic Re- Rich, N. & Hines, P. (1997). Supply- management, product information search Partnerships: Their Role, and Chain Management and Time-based

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Competition: The Role of the Stanley, L. L. & Pearson, J. N. (2000). Tyndall, G. R. (2000). The Global Supplier Association. International Buyer-Supplier Strategies and Their Supply Chain Challenge. Supply Journal of Physical Distribution and Impact on Purchasing Performance: Chain Management Review. Vol. 3, Logistics Management. Vol. 27, No. A Study of the Electronics Industry. No. 4, pp.13-15. 3 & 4, pp. 210-225. Conference 2000, Richard Ivey Womack, J. & Jones, D. (1996). Lean Sheridan, J. H. (1999). Managing the School of Business, University of Thinking. New York, NY: Simon & Chain. Industry Week. September, Western Ontario. London, May 24- Schuster 6. pp. 50-66. 27, 2000. Stank, T.; Daugherty, P. & Ellinger, A. E. Timme, S. G. & Williams-Timme, C. (1999). Marketing/Logistics Integra- (2000). The Financial SCM Con- tion and Firm Performance. Interna- nection. Supply Chain Management tional Journal of Logistics Manage- Review. Vol. 4, No. 4, pp.32-40. ment. Vol. 10, No. 1, pp.11-24.

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