SUPPLY CHAIN NETWORKS BUSINESS PROCESS ORIENTATION

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1 SUPPLY CHAIN NETWORKS and BUSINESS PROCESS ORIENTATION Advanced Strategies and Best Practices Kevin P. McCormack William C.Johnson with William T.Walker The St. Lucie Press/APICS Series on Resource Management The Educational Society lor Resource sl ST. LUCIE nische University Darmstadt Fachbereich 1 triebswlrtschaftliche Bibliothek Inventar-Nr.: Abatell-Nr.: Jk. 'RESS A CRC Press Company Boca Raton London New York Washington, D.C.

2 CONTENTS 1 Introduction 1 Summary 5 References 7 2 Business Process Orientation From Vertical Integration to Networked Communities 9 An Overview of the BPO Concept 10 Functional Orientation: How Did We Get Here? 12 Process and Value Creation 13 Business Process Orientation in the 1990s Technology Enablement Business Process Orientation in the 1990s Organizational Design 19 BPO: From Concept to Measurement 21 The Impacts of BPO 23 Business Process Orientation and the Networked Corporation 26 S u mm a ry 28 References 29 3 BPO and the Supply Chain Performance 31 Supply Chain Management and BPO 31 Data Collection 34 Finding the Relationships 35 Relating BPO to Supply Chain Performance 40 Summary 42 4 BPO and Supply Chain Management Maturity 45 Process Maturity and SCM 45 Process Maturity Concepts and Foundations 45 Assessing Supply Chain Network Maturity using BPO 48 SCM Maturity Levels 50 BPO Components in the SCM Maturity Model 52 Using the SCM Maturity Model 56 vii

3 viii Supply Chain Networks and Business Process Orientation Case 1: Ad Hoc "Shore Up the Chassis Before You Race the Car" 57 Basic Process Documentation 59 Basic SCM Best Practices 59 Basic SCM 60 Basic Process Jobs 60 Basic SCM Measures 60 Basic Operations Strategy 60 Conclusion 6l Case 2: Defined "Expand the Chassis and Turbocharge the Engine with Advanced Measurements" 6l Basic Process Structure 6l Basic Operation Strategy 62 Balance is a Problem 62 Case 3: Integrated "Patch a Few Holes in the Chassis and Push to the Next Level" 63 Basic SCM Jobs 64 Basic SCM Measures 64 Advanced Process Structure 64 SCM Maturity and Business Performance 64 Conclusion and the Extended Supply Chain The Next Frontier 66 References 67 The Extended Supply Chain and the Internet The Bridge to a Supply Chain Network 69 Introduction 69 Background 70 Scope and Organization of Our Study 72 Defining the Concepts and Measures 73 Internet Technology Usage 73 Integrating Practices 73 Measures 74 Data Gathering and Results 77 Sample 77 Analysis of Data 77 Results and Findings 81 Conclusions and Implications 83 References 84 Interactions and Relationships in the Networked Economy 87 Introduction 87 Interaction Costs Unbundling the Corporation 88 More Than Just Communication 91 Information Exchange and Network Alignment 94 Building Stronger Network Bonds ; The Ties that Bind 96

4 Contents IX Trust 96 Commitment 97 Cooperation 98 Dependence 98 Summary 99 References Unbundling the Corporation: A Blueprint for Supply Chain Networks 103 Understanding Supply Chain Networks 103 Identifying the Main Thread and Business Strategy Alignment 104 Classifying the Supply Chain Players 107 Tracing the Flows through the Network Physical, Information, and Cash 109 Network Dynamics Static, Switched, and Chaotic 112 Building BPO within a Supply Chain Network 114 The APICS SCM Principles and BPO 115 Integrating BPO with Network Design 117 Build a Competitive Infrastructure 117 Leverage Worldwide Logistics 119 Integrating BPO with Network Operations 122 Synchronize Supply with Demand 122 Measure Performance Globally 125 Driving Value through High BPO Maturity 127 Summary 128 References The Challenges of Building a Networked Supply Chain Introduction 132 The SC Network Model 132 Building the Model 134 Concepts and Components 134 Measuring SC Network Performance 135 Situational Factors 137 SC Network Situational Factors Internal 137 SC Network Situational Factors External (Environmental) Applying the Model to an SC Network 141 The Focus of the Model 141 Using the Model to Create Alignment within the SC Network 142 Conclusions 144 References 145 Case 1: Herding Cats across the Supply Chain 147 Ram Reddy and William C. Johnson Background 147 Denning the Problem 148

5 Supply Chain Networks and Business Process Orientation Proposed Solution 149 The 800-pound Gorilla Approach Role of the Channel Master 150 Collaborative Team Approach A Win-Win Focus 151 What Happened? 152 The Lessons Learned 152 Case Questions 154 References 155 Case 2: Envera Creating Value through Supply Chain Optimization in the Chemical Industry 157 Richard Chvala and William C, Johnson History 157 Envera's Value Development and Deployment 158 Explanation of Value Chain Economics 158 Origin of the Envera Business-to-Business (B2B) Exchange 159 Developing and Launching Envera First Steps 162 Transforming Chemical Industry Supply Chains 163 Forces of Change 164 Benefits of Supply Chain Etransformation 166 The Challenges and Competitive Responses 167 Case Study Questions 168 Appendix A: Final Survey Questions 169 Exhibit A.I BPO Survey Questionnaire 169 Process View (PV) 170 Process Jobs (PJ) 170 Process Management and Measurement Systems (PM) 170 Interdepartmental Dynamics (ID) 171 Interdepartmental Conflict 171 Interdepartmental Connectedness 171 Organizational Performance (OP) 172 Measures of Esprit de Corps 172 Overall Performance (5 = excellent, 1 = poor) 173 General Questions Needed for Analysis and Reporting of Results Exhibit A.2 Supply Chain Assessment Survey 175 Supply Chain Management 175 Decision Process Area: Plan (Includes PI: Plan Supply Chain, and P0: Plan Infrastructure) 175 Decision Process Area: Source (Includes P2: Plan Source) 177 Decision Process Area: Make (Includes P3: Plan Make) 178 Decision Process Area: Deliver (Includes P4: Plan Deliver) 179 Common Themes Within Each Supply Chain Decision Process Area: Strategies, Tactics and Philosophy Components that are Common Across the Supply Chain 181 Relative Performance 182 General Questions Needed for Analysis and Reporting of Results 183

6 Contents xi Appendix B: Regression and Coefficient Alpha Analysis Results 185 Appendix C: Extended Supply Chain vs. Internet Usage Correlation Results 189 Appendix D: SC Network Model and Situational Factors Detailed Survey Questions 191 Exhibit D.I: SC Network Model Components and Outcomes Detailed Survey Questions 191 Process View (PV) 192 Process Jobs (PJ) 193 Process Management and Measurement Systems (PM) 193 Process Structures (PS) 193 Process Values and Beliefs (PVB) 194 Technology Support (TS) 194 Overall Performance (5 = Excellent, 1 = Poor) 195 Measures of Supply Chain Network Esprit de Corps 195 Internal Situational Factors Supply Chain Network Power Measures 195 Expert Power 195 Referent Power 196 Legitimate Power 196 Legal Legitimate Power 196 Rewa rd Power 196 Coercive Power 196 Other Measures 197 Commitment 197 Conflict 197 Conflict Resolution 197 Cooperation 197 Trust 198 Performance 198 Competitive Edges Survey Instrument 198 External Situational Factors (Environmental Factors) 199 Market Turbulence 199 Competitive Intensity 200 Technological Turbulence 200 Glossary 201 Index 213

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