Logistics Information Management

Managing a global supply chain partnership

Jaideep Motwani Lars Larson Suraj Ahuja
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Jaideep Motwani Lars Larson Suraj Ahuja, (1998),"Managing a global supply chain partnership", Logistics Information
Management, Vol. 11 Iss 6 pp. 349 - 354
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Managing a global
supply chain
partnership
Jaideep Motwani
Lars Larson and
Suraj Ahuja
The authors
Downloaded by Universitas Gadjah Mada At 20:20 14 September 2016 (PT)
Jaideep Motwani is the Director of the Seidman Research
Center, Seidman School of Business, Grand Valley State
University, Grand Rapids, Michigan, USA.
Lars Larson is the Chair of the Management Department,
Grand Valley State University, Allendale, Michigan, USA.
Suraj Ahuja is a Graduate Assistant at the Seidman
School of Business, Grand Valley State University, Grand
Rapids, Michigan, USA.
Abstract
Presents a survey of the global supply chain management
(GSCM) literature with specific emphasis on the applica-
tion of the process, services and products used by organi-
zations to achieve competitive advantage and market
position. Through case studies, we look at the current
management practice used by multinational corporations
such as Campbell Soup, Kmart, Dell Computer, Hewlett-
Packard, Digital Equipment Corporation, and Volvo for the
development of a global supply chain partnership strategy.
Next, based on the literature review and current manage-
ment practices, we propose a practical model for
implementing global supply chain principles within an
organization. We conclude with a discussion of the
implications for managers and academicians.
Logistics Information Management
Volume 11 Number 6 1998 pp. 349354
MCB University Press ISSN 0957-6053
Introduction
Trade is increasingly taking place international-
ly, both within and outside blocs, such as the
European Union, the North American Free
Trade Area, and other regional groups. The
bulk of international trade takes place in mate-
rials and intermediate components. Global
corporations ship semi-manufactured products
between their own facilities or from suppliers to
assembly plants and distribution centers.
Needs for centralized research and develop-
ment, the development of homogeneous mar-
kets and, global products and market segments
for many products have fueled the trend toward
global supply chains. Global supply chain
management (GSCM) allows firms to make
full use of intellectual capital and knowledge
base for research and development, engineer-
ing and market research. In addition, GSCM
allows corporations to take advantage of diver-
sity in the international environment by recog-
nizing and exploiting regional differences, i.e.,
in the level of product and process technology
expertise, labor force capabilities, input factor
costs, local tax rates, and the capabilities of off-
shore vendors (Cohen and Mallik, 1997).
The mounting pressure on manufacturers
to deliver quickly has made the practice of
GSCM one of the hottest topics in manufac-
turing today. The trick to building GSCM lies
in balancing raw materials, work in progress,
component inventories and finished goods in
response to ever-changing markets, says
Bernard J. La Londe, professor emeritus and
academic advisor to the Supply Chain Man-
agement Group at Ohio State University. And
despite the culture changes and responsibility
that accompany a revamp of the supply chain,
global companies will not stop their work
towards unifying inventories and production
(Handfield and Nichols, 1999).
In this paper, we present a survey of the
GSCM literature with specific emphasis on the
application of the processes, services, and
products used by organizations to achieve
competitive advantage and market position.
Through case studies, we look at the current
management practices used by multinational
corporations for the development of a global
supply chain partnership strategy. We conclude
with a discussion of the implications for
managers and academicians.
Literature review
Global competition is forcing corporations to
periodically look at their supply chain map to
349
 Managing a global supply chain partnership
Jaideep Motwani, Lars Larson and Suraj Ahuja
reduce costs and time involved in the process.
Innovations in this area help corporations in
gaining significant advantages over their global
competitors. According to Scott and West-
brook (1991), many companies have already
begun to see the development of a competitive
supply chain as a necessity, a matter of survival
rather than choice. Ellram (1990) concludes
that supply chain management is not a quick
fix, nor is it the competitive form for every
situation. However, supply chain management
appears to have great potential for contributing
to the competitiveness of a channel of distribu-
tion if properly managed and implemented.
Kopczak (1997) investigates the interaction
between formation of logistics and supply
chain restructuring in the US computer indus-
try via a survey of 30 ongoing partnerships.
The survey results and examples support the
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characterization of logistics partnerships into
restructuring partnerships and non-restructur-
ing partnerships. While both approaches are
viable and provide benefit, restructurers report
much greater improvements in supply chain
performance. She suggests duplicating her
study in other similar and dissimilar industries
to determine to what extent the results are
generalizable.
Stevens (1990) concludes that those compa-
nies that consider the supply chain during the
strategic debate, manage it as a single entity
and ensure the appropriate use of tools and
techniques in order to meet the needs of the
market. Such companies will obtain real bene-
fits resulting from the double-edged impact of
increased market-share on a lower asset-base
and those that do not will get left behind in the
struggle for survival.
Elliot (1997) reports that in the fourth study
of benchmarking integrated supply chain
management processes, management consult-
ing firm Pattiglio Rabin Todd & McGrath
(PRTM), Weston, MA, found that best-in-
class companies the top 20 per cent perform-
ers have the edge in supply-chain manage-
ment, and attain considerable cost savings as a
result. The firm surveyed 225 companies in
various industry segments including comput-
ers/electronic equipment, semi-conductors and
telecommunications in 1996.
According to Copacino (1996), when the
entire channel members including suppliers,
manufacturers, distributors, and customers
behave as if they are part of the same company,
they can enhance performance significantly
across the board. But, this is easier said than
done. Successful supply-chain management is
extremely complex; the number of players
350
Logistics Information Management
Volume 11 Number 6 1998 349354
involved means that each companys supply-
chain management process will be unique.
There are however, some general principles
that every company should follow when man-
aging across the supply chain. In this article, he
outlines seven of these principles.
Battaglia (1994) concludes that essentially,
supply chain management is an integrating
process, based on the flawless delivery to cus-
tomers of basic and unexpected services. Sim-
ply put, when a company delights its
customers, it moves into the realm of value-
added service. He further adds that logistics is
a relatively new discipline. For decades, execu-
tives were more likely to think in terms of its
component activities, such as forecasting,
purchasing, and production planning or ware-
housing. Typically, these activities were man-
aged in a fragmented manner. As a result, it
was not uncommon to find them under sepa-
rate functions. But business processes cut
across an organizations functional and depart-
mental boundaries. Among the most impor-
tant business processes in manufacturing
companies are those that develop, produce,
sell, process orders, and deliver products.
Supply chain management plays an important
role in most of these processes.
Current supply chain management
practices
Table I provides a summary of the current
GSCM systems/programs implemented by
leading corporations. Cachon and Fisher
(1997) develop simple inventory management
rules to operate Campbell Soups continuous
replenishment (CR) program. These rules are
tested with a simulation using actual demand
data provided by Campbell Soup. They con-
clude that retailer inventories were reduced on
average by 66 per cent while maintaining or
increasing average fill rates. The simple inven-
tory management rules were effective because:
each products individual characteristics,
such as average demand and demand vari-
ability, are incorporated into determining
replenishment decisions;
promotion forecasting is enhanced by con-
sidering past promotions; and
the full truck load constraint is not ignored.
They further state that though the tests were
conducted in the soup industry, the results
could apply to some other industries.
Cottrill (1995) states that it is easy to assume
that an industry that supplies consumer and
industrial markets with an estimated 70,000
 Managing a global supply chain partnership Logistics Information Management
Jaideep Motwani, Lars Larson and Suraj Ahuja Volume 11 Number 6 1998 349354

Table I Summary of corporations that have implemented a GSCM system

Corporation GSCM practice

Campbell Soup Campbell Soups continuous replenishment (CR) program is a novel innovation
designed to improve the efficiency of inventory management throughout the supply
chain.

Hewlett-Packard (HP) In the spring of 1989, the Strategic Planning and Modeling (SPaM) group at HP
began modeling the supply chain. They used a modeling approach based on devel-
oping a single-site inventory model to represent each operation in the supply chain
and then integrated all the individual site models to cover the complete supply
chain.

Dell Computer Dell Computer, in 1997, launched a supply-chain management system that links its
supply and demand data systems together, maximizing its production ability. The
system replaces work done manually. The software is designed specifically for the
high-tech industry.

Cisco Systems Having a supply chain management program that gives distributors and contract
manufacturers almost instant access to incoming orders, Cisco Systems Inc., has
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remained nimble while growing at a frantic clip. Around 1996, Cisco introduced an
online order system that allows customers to place orders right into the companys
internal system. This system works in conjunction with the Single Enterprise Pro-
gram, which was set up around 1994 that allowed distributors and contractors to
view Ciscos demand forecasts through a direct link to its MRP systems.

Digital Equipment Digital Equipment Corporation evaluates global supply chain alternatives and
Corp. determines worldwide manufacturing and distribution strategy, using the Global
Supply Chain Model (GSCM) which recommends a production, distribution, and
vendor network. GSCM minimizes cost or weighted cumulative production and
distribution times or both subject to meeting estimated demand and restrictions on
local content, offset trade, and joint capacity for multiple products, echelons, and
time periods.

Volvo Logistics has become as much a core competency for the Volvo Group as its manu-
facturing operations, says Rune Svensson, president of Volvo Transport, a wholly
owned subsidiary within the Volvo Group that is responsible for all transportation
and logistics activity for most of the corporations 150 operating divisions. Volvo
Transport handles everything from managing carriers worldwide, to global inventory
and shipment tracking, to insurance and customs clearance.

Lucent technologies Companies like Lucent Technologies Inc., are taking this mission seriously. David
Inc. Wilson, logistics and service vice-president of the Microelectronics Groups Integrat-
ed Circuit Division was bought on board in December 1994 to improve the divisions
supply-chain management, as the company works to succeed in a very competitive
marketplace. For the future, [supply-chain management] is the key to the riddle,
he says.

Kmart Mexico In June 1993, Kmart Mexico turned to IBM International Trade Management Ser-
vices (ITMS), contracting them to set up an enterprise model of Kmart Mexico and
help in coordinating its successful implementation. ITMS developed compliant
processes for cross-border goods, information and financial flows for five different
supply options, covering all Mexican and US trade requirements.

American Today the technological components exist for a beautiful and efficient supply chain,
Consolidation says Peter Weis, vice president for Information Services (ACS), wholly-owned sub-
sidiary of APL Limited. ACS helps customers design consolidation, transportation,
and distribution processes to meet their supply-chain requirements. ACS customers
are largely North American or European importers of merchandise. Their supply
chains extend from vendors in South China to retail stores in North America or
Europe. Weis says his companys goal is to track customer inventory through their
supply chain so that they have the information needed to manage it.

351
 Managing a global supply chain partnership
Jaideep Motwani, Lars Larson and Suraj Ahuja
products, has an export business worth $15.5
billion and has a trade surplus of $18.3 billion,
would be on the leading edge of supply chain
management right? Wrong, according to
management consultants A.T. Kearney, Inc.
The chemical industry is a laggard when it
comes to supply-chain management, says
Kearney, and the shortcoming is costing it
dearly. Among the shortcomings identified are
incongruous internal goals, poor integration
with suppliers and customers, fragmented
processes and inappropriate performance
measures.
Logistics has become as much as a core
competency for the Volvo Group as its manu-
facturing operations, says Rune Svensson,
president of Volvo Transport, a wholly owned
subsidiary within the Volvo Group that is
responsible for all transportation and logistics
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activity for most of the corporations 150 oper-
ating divisions. Volvo Transport handles every-
thing from managing carriers worldwide, to
global inventory and shipment tracking, to
insurance and custom clearance (Foster, 1995).
McKee (1994) concludes that Kmart was
smart enough to know it needed some help. In
June 1993, they turned to IBM International
Trade Management Services (ITMS), con-
tracting them to set up an enterprise model of
Kmart Mexico and help in coordinating its
successful implementation. ITMS developed
compliant processes for cross-border goods,
information and financial flows for five differ-
ent supply options, covering all Mexican and
US trade requirements. To design the state-of-
the-art system which pre-classifies goods,
provides Spanish descriptions and interfaces
with government systems to generate automat-
ic SEDs, invoices and pedimentos. This
involved coordination between 15 different
client, supplier, and government and, consul-
tants organizations to enable correct informa-
tion flow from Kmarts systems to trade and
merchandising systems. Kmarts two Mexico
City Super K stores opened on schedule with
all imported goods on the shelves. Record time
was achieved from the initial plan development
to store opening six months sooner than their
closest competitor, says Fickle, ITMS Prac-
tice Leader. Like Kmart Mexico, ITMS
clients usually are aware of a problem but need
help with assessing the severity of it, the causes
and potential solutions. Most of the client
problems are international logistics ones, not
general process re-engineering or business
transformation, although there are exceptions.
Mckee further concludes that the most com-
mon problem the GSCM consultant group
Logistics Information Management
Volume 11 Number 6 1998 349354
finds is outdated information technology with
respect to international needs.
Arntzen (1995) investigated the GSCM at
Digital Equipment Corporation. They found
that Digital Equipment Corporation evaluates
global supply chain alternatives and determines
worldwide manufacturing and distribution
strategy, using the GSCM, which recommends
a production, distribution, and vendor net-
work. GSCM minimizes cost or weighted
cumulative production and distribution times
or both subject to meeting estimated demand
and restrictions on local content, offset trade,
and joint capacity for multiple products, eche-
lons, and time periods. GSCM is a large
mixed-integer linear program that incorporates
a global, multi product bill of materials for
supply chains with arbitrary echelon structure
and a comprehensive model of integrated
global manufacturing and distributed deci-
sions. The supply chain restructuring has saved
over $100 million.
One of the capabilities that distinguishes
Solectron from other major competitors in the
contract manufacturing industry is its focus on
supply-chain optimization to create value for
both its customers and its bottom line. The
company has made strategic investments in
expanding its range of capabilities and services
offered, which helps it to wring out of the
product process, beginning at design and
continuing through manufacturing and distrib-
ution. Solectron is able to offer customized
services to meet its customers unique needs,
yet still maintain core common processes (such
as its Malcolm Baldridge Quality standards
and customers feedback process) in order to
show the same face to customers worldwide
(Handfield and Nichols, 1999).
A proactive approach to implementing
GSCM
Figure 1 depicts the issues that corporations
should consider when implementing a GSCM
program, from start to implementation. The
inputs for this model generated from the review
of literature. The proposed model comprises of
five stages. The five stages of the model include
creating awareness and commitment, search-
ing and planning, selecting, implementing, and
evaluating.
In the first phase of the model, the top
management must develop a complete under-
standing of what is GSCM and how they plan
to achieve it. Prior to understanding GSCM, it
is recommended that organizations develop
and document the characteristics of the
352
 Managing a global supply chain partnership
Jaideep Motwani, Lars Larson and Suraj Ahuja
Figure 1 A practical GSCM model
Phase 1
Creating awareness and
Commitment
Phase 2
Searching and Planning
Phase 3
Selecting
Phase 4
Implementing
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Phase 5
Evaluating
marketplace (Stevens, 1990). The process used
to evaluate market characteristics involves
looking at and surveying vendors, customers,
and competitors. The criteria for choosing to
develop a partnership with a supply chain
member organization is typically driven by the
expectation of performance improvement in
the areas of quality, cost, delivery, flexibility,
and customer service.
Once the understanding and commitment is
made, in the second phase of the model, the
administration should do the following: estab-
lish selection and planning criteria, set expecta-
tions, and assess/evaluate supplying chain
partners. In evaluating a partner for possible
alliance/partnership, organizations will need to
perform a detailed assessment of the
supplier/customer because the organization is
purchasing not only the suppliers products
and services but its capabilities as well. Some of
the criteria that an organization may use to
assess the potential of integrating a partner into
a supply chain should include: company profile
information, management and personnel
capabilities, cost structure, environmental
regulation compliance, financial stability,
supplier sourcing strategies, long-term rela-
tionship potential, among others (Handfield
and Nichols, 1999)
In the third phase, the administration
should formally form a partnership, establish
effectiveness measures and indicators, establish
specific detailed expectations, determine
operating standards, and perform competitive
Logistics Information Management
Volume 11 Number 6 1998 349354
Define/Redefine Core Competence
Top management commitment
Develop understanding of GSCM
Establish Searching & Choosing criteria
Establish selection and planning criteria
Set expectations
Asses/Evaluate supplying chain partners
Formally form a partnership
Establish effectiveness measures and indicators
Establish specific detailed expectations
Determine operating standards
Perform competitive benchmarking
Evaluate operating standards
Recognize and reward improvements
Evaluate program annually
Evaluate strategic & operational aspects of
partners
Redesign or revise program
benchmarking. The partnership strategy
should make full use of both parties operations
and competitive tools. In addition to formaliz-
ing a written contract, it is very critical that
both partners clearly state the criteria for man-
aging the relationship and the procedures that
will be used to resolve any problems that may
arise in the future
The fourth phase, referred to as imple-
menting should involve: evaluation of operat-
ing standards, and procedure for recognizing
and rewarding improvements. The secret to
successfully deploying the integrated supply
chain is through joint problem solving, which
occurs when each party is committed to mak-
ing the relationship work (Handfield and
Nichols, 1999). Several companies (mentioned
earlier) have built a feedback mechanism to
ensure that the ongoing relationship and com-
munication is successful.
The final phase of the model should involve
evaluating success/failure of the GSCM pro-
gram. This should be conducted annually. For
example, if the program is not achieving its
goals, it should be redesigned. If modified, the
partners should determine what changes are
required, implement them, and then assess the
new changes.
Conclusion and future direction
Strategic partnerships (information sharing
and other form of linkages that involve shared
processes or activities that enhance intellectual
353
 Managing a global supply chain partnership
Jaideep Motwani, Lars Larson and Suraj Ahuja
capital) between supplier and customer value
chains are an important source of competitive
advantage, with advances in information tech-
nology creating new opportunities to jointly
optimize the total industry value chain across
multiple organizations. This New World of
global supply chain provides significant oppor-
tunities for optimizing the operations process
by exploiting economies of scale and scope in
both manufacturing and design. To aid in the
process, we propose and develop a model that
companies implementing GSCM should
consider. The five stages of the model include
creating awareness and commitment, search-
ing and planning, selecting, implementing, and
evaluating.
In supply-chain strategies, managers will
encounter new and challenging situations on a
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daily basis. Some of these challenging situa-
tions are internal and involve getting people to
adopt the new way of thinking. Other chal-
lenges relate to government regulations and
how to comply with a multitude of rules and
regulations as goods traverse international
borders. Finally, there also exist challenges set
forth by customers, whose needs and require-
ments change rapidly and continue to escalate.
These changes will require a level of respon-
siveness never before encountered in the busi-
ness world. These challenges can be summa-
rized as follows:
sharing risks in inter organizational relation-
ships,
managing the global supply chain,
the greening of the supply chain,
design for supply chain management, and
intelligent information systems (Handfield
and Nichols, 1999).
In addition, balancing assets and service in
international supply chains is clearly a difficult
challenge. It requires not only a change in
control philosophies and techniques but also a
change in management perspective to span the
traditional organizational boundaries. Other
areas for future research include:
As companies become more and more
dependent on their supply chain members,
they will have to find new and innovative ways
to manage the risks associated with sharing
proprietary and sensitive information with
supply chain members.
Technology ownership and splitting market
share will become even more important
because of the increasing trend towards con-
sumer direct marketing being driven by tech-
nologies such as the World Wide Web. As this
trend unfolds, there will undoubtedly be
354
Logistics Information Management
Volume 11 Number 6 1998 349354
conflicts regarding market access, market
share, and risk/cost/benefit/ sharing between
the parties involved in supply-chain manage-
ment partnerships.
How are companies to organize themselves
to manage mass customized markets in an
integrated supply chain environment?
As supply chain structures begin to evolve,
increasing investments in distribution centers,
information systems, training, transportation
carriers, and new technology will be required
to integrate members. To justify these invest-
ments, researchers will need to determine who
takes on the risk of the investment, and who is
entitled to the reward if and when it pays off.
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