Supply chain management survey of Swedish manufacturing firms

Transcription

1 Int. J. Production Economics 89 (2004) Supply chain management survey of Swedish manufacturing firms Jan Olhager*, Erik Selldin Department of Production Economics, Link.oping Institute of Technology, SE Link.oping, Sweden Received 15 April 2002; accepted 16 January 2003 Abstract Supply chain management practices and principles are evolving and changing rapidly, e.g. through modern information and communication technologies. These changes affect the ways supply chains are designed, the way they are managed, and how planning and control activities take place within these chains. But how far have companies come in dealing with supply chain issues? This paper investigates supply chain management strategies and practices in a sample of 128 Swedish manufacturing firms. We specifically study issues related to the supply chain design, integration, planning and control, and communication tools for managing supply chains. The main findings indicate the following. The extent to which suppliers and customers are involved in supply chain planning and control is expected to increase steadily over the next 2 years. The primary priority for the selection of supply chain partners is quality performance. However, delivery dependability, cost efficiency, volume flexibility, and delivery speed are also judged to be important inputs to the supply chain partner selection process. Today, companies expect to broaden and deepen the use of new information and communication technologies for improving supply chain operations. Our findings concerning future supply chain management practices, principles and priorities are discussed. r 2003 Elsevier Science B.V. All rights reserved. Keywords: Supply chain management; Integration; Manufacturing; Survey; Sweden 1. Introduction The challenges for manufacturing firms are shifting from internal efficiency to supply chain efficiency. World-class manufacturing today assumes that the entire supply chain is world class. It may be necessary but no longer sufficient to continuously improve the internal operations if the external linkages are not up to par. A supply chain focus is vital for the long-term well being of *Tel: ; fax: address: jan.olhager@ipe.liu.se (J. Olhager). any manufacturing firm. During the 1990s the software support systems transited from manufacturing resource planning (MRPII) to enterprise resource planning (ERP) to illuminate the importance of planning and controlling all resources in a manufacturing firm; not only material and capacity. The outward-shifting focus to the supply chain calls for another type of software support systems, i.e. supply chain-planning software. A foundation for implementing suchsystems is the strategic linkages between successive partners in a supply chain; not only for tactical planning and control, but also withrespect to strategic intent; as /03/$ - see front matter r 2003 Elsevier Science B.V. All rights reserved. doi: /s (03)00029-x

2 354 J. Olhager, E. Selldin / Int. J. Production Economics 89 (2004) suggested by case studies (see e.g. Arntzen et al., 1995; Camm et al., 1997; Hahn et al., 2000), empirical research(see e.g. Frohlich and Westbrook, 2001; Lowe and Markham, 2001) and theory (see e.g. Cohen and Mallik, 1997; Fisher, 1997; Lummus et al., 1998; Simchi-Levi et al., 2000; Stadtler and Kilger, 2000; Stock et al. 2000; Chopra and Meindl, 2001). In this paper we present a survey of supply chain strategies and practices in Swedishmanufacturing firms. The motivation for this survey is also based on a previous survey to manufacturing industries in Sweden (Olhager and Selldin, 2002) focusing on the implementation of ERP systems. This study showed that companies are about to extend their ERP functionality. These extensions are primarily concerned with supply chain management, and the top priorities for the near future are supply chain planning (SCP) systems and integration with customers and suppliers. Therefore, we decided to continue witha survey focussing on supply chain issues related to integration, design, planning and control, from a practice as well as a systems perspective. The survey covers supply chain integration issues from a company perspective. Previous studies on supply chain strategies and practices generally find that broader integration leads to improved performance. Frohlich and Westbrook (2001) find that extensive and balanced integration leads to better performance in terms of marketplace, productivity and non-productivity indicators, compared to firms having no, narrow or biased integration towards the supplier or the customer side. However, the level of integrative activities was generally rather low among the firms in the sample, which contained data from Lowe and Markham (2001) report on the outcome of the 2001 A.T. Kearney global excellence in operations award, which contains some supply chain elements. The top five finalists had closer integration withsuppliers, and experienced better payback for e-commerce IT investments with customers and suppliers, compared to the other companies in the award competition. However, the sample is very small and includes firms from many different industries. In this paper, we investigate a broader range of supply chain management issues, in order to be able to provide for a fuller understanding of supply chain management strategies and practices. The paper is organised as follows. First, we discuss the research methodology and the characteristics of the responding enterprises. Then we present and analyse the survey results, divided into sections on supply chain design, supply chain integration, supply chain planning and control, and supply chain communication. Finally, some concluding remarks are provided. 2. Research methodology The survey reported here was mailed to PLAN members employed within manufacturing firms in Sweden; PLAN is the Swedish Production and Inventory Management Society. PLAN provided the mailing lists. The questionnaire focuses on supply chain issues such as design, integration, planning and control systems, and communication tools and techniques. In May 2001 the authors mailed the questionnaire to PLAN members in 511 different firms. This constituted the entire body of PLAN members in Swedishmanufacturing firms. Postage-paid return envelopes were provided. The survey employed three question formats: Likert scales, multiple response, and metric measurement scales. By October 2001, 128 usable responses were received for a response rate of 25.0%, which must be considered to be quite good for this type of survey. 3. Enterprise characteristics The characteristics of respondent and the enterprise are summarised in Table 1. The largest group of respondents was materials/supply chain managers (39.4% of the responses). The second largest group was production/inventory control managers (18.9%). Together, these two categories account for approximately 60% of the respondents. The other respondents hold other positions but are members of the Swedish Production and Inventory Management Society, wherefore

3 J. Olhager, E. Selldin / Int. J. Production Economics 89 (2004) Table 1 Enterprise characteristics Percent Respondent s position Executive 4.72 Materials/Supply chain manager Production inventory control Systems analyst/ support Plant/operations 9.45 manager Purchasing 3.94 manager/buyer Other Firm s annual revenue $15 M or less 25.0 $16 M to $50 M 26.8 $51 M to $250 M 29.5 $251 M to $750 M 13.3 More than $750 M 5.4 Number of employees Fewer than to to to More than Type of goods produced Industrial goods 69.1 Consumer goods 30.9 Order penetration point MTS (%) MTO (%) Process choice Project 7.71 Job shop Flow shop Line Continuous process Dominating actor in the supply chain 2nd tier supplier st tier supplier Focal company st tier customer nd tier customer 7.89 most of, if not all, the respondents are professionally centrally involved in questions and problems related to supply chain operations. There could however be a bias included in the sample of respondents since there are few high executives and people working withmarketing and sales towards the customers. A majority of the responding firms have annual revenue of $50 million or less, and fewer than 500 employees. However, the sample also includes large corporations and large divisions within corporations. Most companies, 69.1%, are producing industrial goods and the remaining 30.9% are producing goods for the consumer market. The order penetration point determines the point along the total production process where a specific product being produced is linked to a customer. Two distinct choices are contrasted, i.e. make-to-stock (MTS) vs. make-to-order (MTO). MTO includes engineer-to-order situations (ETO) and assemble-to-order (ATO). Thus, the manufacturing environments where the finishing operations are carried out based on actual customer orders are collected in the MTO option. The percentages in Table 1 indicate the proportion of items being produced in a MTS or MTO fashion. Make-to-order dominate (65% MTO or more) in 57.9% of the firms, whereas 31.7% of the firms are dominated by MTS (65% MTS or more). The remaining 10.4% have a more or less equal split between MTO and MTS. The distribution of process choice takes into account that a manufacturing firm may have a mix of processes. Eachfirm divided 100% among the five fundamental process choices: project, job shop, flow shop, line, and continuous process. Discrete manufacturers dominate withalmost equal distribution among job shop, flow shop, and line. There are 7.7% project manufacturing and 10.3% continuous process, wherefore all five basic process choices are represented. When it comes to supply chain dominance, most of the respondents indicate their own operations as the most important in their respective supply chains. First tier customers dominate in almost one-third of the cases, whereas upstream partners dominate in less than 20% of the cases in this sample.

4 356 J. Olhager, E. Selldin / Int. J. Production Economics 89 (2004) Survey results The results of the survey are divided into four sections: supply chain design, supply chain integration, supply chain planning and control, and supply chain communication Supply chain design Table 2 summarises the answers concerning the supply chain design objectives. The primary purpose of establishing the supply chain design is really a mix of many factors: securing supply and demand outlet, involving supply chain partners in product development, as well as achieving both cost minimisation and fast response to changes. However, as for manufacturing focus, resource utilisation dominates the deployment of excess buffer capacity, indicating a stronger emphasis on cost minimisation than on fast response. There is no preferred inventory strategy: minimising inventories and holding buffer inventories receive approximately the same support. Lead-time reduction may be important but not at the expense of cost increases. This fact also supports cost minimisation rather than fast response. Supply chain partners are primarily selected based on quality performance. The second most important issue is delivery dependability. Actually, many issues are important when selecting supply chain partners; cost efficiency, volume flexibility, and delivery speed are also very important. Still, the quality issue seems to be extremely important, with mean 4.50, standard deviation 0.64, median 5, and mode 5 on a Likert scale from 1 to 5, ranging from not important to very important. Table 2 Supply chain design objectives Average a Std. dev. a Median a Mode a Primary purpose Secure supply of raw materials and components Provide fast response to changing needs Integrating suppliers and customers in product development Minimise costs Secure distribution and market channels Manufacturing focus Maintain high average utilization rate Deploy excess buffer capacity Inventory strategy Minimise inventory Deploy buffer stocks of parts or finished goods Lead-time focus Shorten lead time as long as it doesn t increase cost Invest aggressively in ways to reduce lead time Approachto choosing partners Select primarily for quality Select primarily for delivery dependability Select primarily for cost efficiency Select primarily for volume flexibility Select primarily for delivery speed Select primarily for product mix flexibility Select primarily for reputation a Scale 1 to 5, not important to very important.

5 J. Olhager, E. Selldin / Int. J. Production Economics 89 (2004) Supply chain integration Table 3 shows that on average, the respondents consider their company s supply chain coordination ability to be somewhat mediocre. It scores just slightly above 3; probably due to the fact that supply chain coordination is new to many companies and that there are still opportunities for improvement. The dominating actor in the supply chains of the respondents (cf. Table 1) showed that downstream actors were dominant in more cases than upstream. This is reflected in that downstream operations are considered to be more critical on the average than upstream, as indicated in Table 3. However, it is important to note that bothsides are considered to be quite critical rather than not critical, emphasising the importance of integration. Forecasting is the area where companies make the most important effort to collaborate, see Table 3. This supports the observation that the demand side of the supply chain is the most important area for collaboration between supply chain partners. Collaborative planning of capacity, inventory and production are used to some extent, but considerably less than collaborative forecasting Supply chain planning and control Even though the current utilisation of supply chain planning and control tools and techniques is at a relatively moderate level, many of these tools and techniques are in their infancy. According to Fig. 1, vendor managed inventory (VMI) and supply chain planning (SCP) are modern techniques that have started to become adopted. There is, however, a low degree of penetration for all the investigated techniques. More interesting to note is the high awareness of SCP and advanced planning and scheduling (APS), known by more than 80% of the respondents. Collaborative planning, forecasting and replenishment (CPFR) is the least known technique with less than half of the respondents aware of it. When comparing these results with Table 3 it should be noted that CPFR as a concept is not the same as collaborative planning or forecasting in general. There is a slight bias for integrating upstream operations, i.e. 1st and 2nd tier suppliers, relative downstream operations according to Fig. 2 and Table 4. In the light of the results concerning supply chain integration, this is interesting. The dominating actor as well as the importance to control the supply chain has a tendency to lean towards the downstream and customer side. The Table 3 Supply chain integration Average a Std. dev. a Median a Mode a Firm s ability to coordinate the supply chain Supply chain coordination ability Average b Std. dev. b Median b Mode b Most critical part of the supply chain to plan and control Downstream, towards the customer Upstream, towards raw materials Supply chain collaboration Collaborative forecasting Collaborative capacity planning Collaborative inventory planning Collaborative production planning a Scale 1 to 5: very poor to very good. b Scale 1 to 5: not at all to a great extent.

6 358 J. Olhager, E. Selldin / Int. J. Production Economics 89 (2004) Fig. 1. Utilization of supply chain planning and control tools and techniques (VMI=vendor managed inventory; SCP=supply chain planning; APS=advanced planning and scheduling; E-kanban=electronic kanban; CPFR=collaborative planning, forecasting and replenishment) Fig. 2. Span of utilization of supply chain planning systems. span of utilization for supply chain planning system has, on the contrary, a very slight bias towards the supplier side (cf. Table 3). This result indicates that companies rather go for ease of integration than importance of integration. Integrating upstream operations is generally easier

7 J. Olhager, E. Selldin / Int. J. Production Economics 89 (2004) Table 4 Span of utilization for supply chain planning system Currently In the near future (within 2 years) Average a Std. dev. a Median a Mode a Average a Std. dev. a Median a Mode a 2nd tier suppliers st tier suppliers Internal operations st tier customers nd tier customers a Scale 1 to 5: not at all to a great extent. To a great extent 5.00 Telephone Fax Letter EDI (incl. XML) Extranets (Internet based) Kanban E-marketplaces Not at all 1.00 Currently Near future Fig. 3. Utilization of tools for communicating withcustomers and suppliers. since the buyer often is the stronger part, whereas it may be more difficult for a supplier to bring on the initiative for a new supply chain planning approach. In 2 years time, the respondents do not expect the distribution of utilization for supply chain planning system to change, but the usage among all actors is expected to increase. A paired t-test of the answers concerning the utilisation of supply chain planning systems today compared withthe utilisation in 2 years from now shows that all of the changes are statistically significant on the 0.01-level. The median and mode numbers in Table 4 also strongly suggest that the evolution of the utilization of supply chain planning systems will increase in the near future. In general, the median firm moves up one step on the five-step scale from not at all to a great extent referring to how different actors along the supply chain are likely to be involved in supply chain planning systems. The largest jump in the data results are for the immediate supply chain partners, i.e. 1st tier suppliers and 1st tier customers, indicating a mode move from 1 to 4 on the scale from 1 to 5, whereas 2nd tier suppliers and customers stay at the lowest utilization mode level. Thus, the main initiatives are expected for the immediate suppliers and customers. However, there will still be several

8 360 J. Olhager, E. Selldin / Int. J. Production Economics 89 (2004) Table 5 Utilization of tools for communicating withcustomers and suppliers Currently In the near future (within 2 years) Average a Std. dev. a Median a Mode a Average a Std. dev. a Median a Mode a Telephone Fax Letter EDI (incl. XML) Extranets (Internet based) Kanban E-marketplaces a Scale 1 to 5: not at all to a great extent. companies that are unlikely to involve suppliers or customers two tiers away; with respect to that the mode remains at 1 and the standard deviation increases even though the averages and medians increase Supply chain communication The ways that companies communicate with customers and suppliers will undergo major changes in the near future. Today, telephone, fax and are the prevalent ways to communicate in the supply chains. The classic communication means suchas letter, phone, and fax is reported to experience a reduction in utilisation (dotted lines in Fig. 3). Electronic communication suchas e- mail, EDI, Internet-based extranets, and e-markets will increase in importance along withkanban (solid lines in Fig. 3). Within the next 2 years e- mail will surpass the telephone as the major communication tool between successive partners in the supply chain. These reversing trends are seen clearly in Fig. 3. The largest expected increase in utilisation is reported for extranets and e-markets. In more detail, Table 5 confirms that the major changes in utilisation will occur for fax (decreases) and EDI, extranets, and e-marketplaces (increase). A paired t-test shows that all differences, both increases and decreases, over the next 2 years are statistically significant on the 0.01-level. 5. Summary and conclusions In this paper we study supply chain strategies in Swedishmanufacturing firms. We used a questionnaire survey to capture the information from 128 different companies. Witha response rate of 25.0% of the 511 contacted companies, this survey is able to provide a fairly accurate overview of the status of supply chain management from a design perspective as well as from a planning and control perspective. Most companies consider their own operation to be the most important part of their respective supply chains. As for other supply chain partners, the downstream direction is more often considered dominant than upstream. From the study we conclude the following. First, the main overall objectives for the design of supply chains are resource utilization and cost minimization. Second, many aspects are important when companies choose supply chain partners, but quality is the single most important criteria. Third, forecasting is the prime area for collaborative efforts. Fourth, companies are prepared to expand the span of their supply chain operations that can be planned and controlled in an integrated fashion. Fifth, companies show relatively high awareness of modern supply chain planning and control tools. However, the utilisation of suchtools is still at a relatively low level. Sixth, the classic means for communication between supply chain members are expected to

9 J. Olhager, E. Selldin / Int. J. Production Economics 89 (2004) decline in importance whereas electronic communication techniques and especially those based on the Internet will increase and become dominant. Companies are starting to appreciate the importance of the supply chains in which they operate. However, most firms have quite some ways to go to take full advantage of the promises of supply chain integration. The awareness of planning and control techniques and communication means is high, and work on increasing and improving supply chain integration and collaboration will be intensified in the near future. Of interest for future research is therefore to study the impact of supply chain collaboration and integration on company performance, to verify that such investments pay off. Acknowledgements This research is supported by grants from the SwedishFoundation for Strategic Research. We would like to acknowledge PLAN for providing the mailing lists. References Arntzen, B.C., Brown, G., Harrison, T.P., Trafton, L.L., Global supply chain management at Digital Equipment Corporation. Interfaces 25 (1), Camm, J.D., Chormann, T.E., Dill, F.A., Evans, J.R., Sweeney, D.J., Wegryn, G.W., Blending OR/MS, judgment, and GIS: Restructuring P&G s supply chain. Interfaces 27 (1), Chopra, S., Meindl, P., Supply Chain Management: Strategy, Planning, and Operation. Prentice-Hall, Upper Saddle River, NJ. Cohen, M., Mallik, S., Global supply chains: Research and applications. Production and Operations Management 6 (3), Fisher, M., What is the right supply chain for your product? Harvard Business Review 75 (2), Frohlich, M.T., Westbrook, R., Arcs of integration: An international study of supply chain strategies. Journal of Operations Management 19 (2), Hahn, C.K., Duplaga, E.A., Hartley, J.L., Supply chain synchronization: Lessons from Hyundai Motor Company. Interfaces 30 (4), Lowe, P.G., Markham, W.J., Perspectives on operations excellence. Supply Chain Management Review 5 (6), Lummus, R.R., Vokurka, R., Alber, K., Strategic supply chain planning. Production and Inventory Management Journal 39 (3), Olhager, J., Selldin, E., Enterprise resource planning survey of Swedishmanufacturing firms. European Journal of Operational Research146 (2), Simchi-Levi, D., Kaminsky, P., Simchi-Levi, E., Designing and Managing the Supply Chain: Concepts, Strategies, and Case Studies. Irwin/McGraw-Hill, Boston. Stadtler, H., Kilger, C. (Eds.), Supply Chain Management and Advanced Planning: Concepts, Models, Software and Case Studies, Springer, Berlin. Stock, G.N., Greis, N.P., Kasarda, J.D., Enterprise logistics and supply chain structure: The role of fit. Journal of Operations Management 18 (5),