Available online at www.sciencedirect.com. ScienceDirect. Procedia CIRP 17 (2014 ) 628 634. Madani Alomar*, Zbigniew J. Pasek



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Available online at www.sciencedirect.com ScienceDirect Procedia CIRP 17 (2014 ) 628 634 Variety Management in Manufacturing. Proceedings of the 47th CIRP Conference on Manufacturing Systems Linking supply chain strategy and processes to performance improvement Madani Alomar*, Zbigniew J. Pasek University of Windsor,401 sunset Ave., Windsor N9B3P4, Canada * Corresponding author. Tel.: +1-519-567-2697; fax:+1-519-800-8020.e-mail address:alomarm@uwindsor.ca Abstract This paper proposes a model that will assist companies, particularly the small and medium-sized enterprises, assess their performance by prioritizing supply chain processes and selecting an adequate strategy under various market scenarios. The outlined model utilizes and integrates the SCOR framework standard processes and AHP approach to construct, link, and assess a four level hierarchal structure. The model also helps SMEs put more emphasis on supply chain operations and management. The use and benefits of the proposed model are illustrated on a case of a family owned, medium-sized manufacturing company. 2014 The Elsevier Authors. B.V. Published This an by open Elsevier access B.V. article under the CC BY-NC-ND license Selection (http://creativecommons.org/licenses/by-nc-nd/3.0/). and peer-review under responsibility of the International Scientific Committee of The 47th CIRP Conference on Manufacturing Systems Selection in and the peer-review person of the under Conference responsibility Chair Professor the International Hoda ElMaraghy. Scientific Committee of The 47th CIRP Conference on Manufacturing Systems in the person of the Conference Chair Professor Hoda ElMaraghy Keywords: AHP; performance improvement; SCOR-model; SMEs; supply chain management. 1. Introduction Manufacturers today are faced with complex global challenges such as low cost competitors, fluctuating commodity prices, increasing customer expectations, and volatile economic conditions. The uncertainty associated with these factors has contributed on one hand, to significant changes in the business environment resulting in tremendous growth and opportunities for new markets, and on the other hand in increased frequency and complexity of challenges that threaten the operations and survival of firms. These competitive pressures are driving manufacturing firms to continuously re-evaluate and adjust their competitive strategies, supply chains, and manufacturing strategies and technologies in order to improve performance, compete, and survive in the long-term. Small and medium-sized enterprises (SMEs) are much more vulnerable to these external pressures than larger firms, thus their responses often fall short, due to limited resources and capabilities (e.g., financial resources, managerial talent, and access to markets). Several research studies have linked the success of businesses to the type of performance management and measurement system used by the firms and to the successful design and implementation of such systems. Other researchers have considered strategic performance management and measurement system as a means to attain competitive advantage, continuous improvement and an ability to successfully manage changes [1, 2]. Since competition at a firm level has been replaced with competition among supply chains, performance improvement models must also reflect this evolution by including supply chain processes and measures as well. The literature has reported on a set of contributions in supply chain performance measurement, for example, the analytical hierarchy process (AHP) has been extensively used for selection process such as comparing the overall performance of manufacturing departments, manufacturing supply chain, benchmarking logistics performance, and vendor evaluation and selection. The supply chain operations reference (SCOR) model has been used in performance improvement applications and frequently integrated with the balance scorecard for the same purposes. However, due to resource limitations in SMEs, the implementation of multi-criteria and well-known models has 2212-8271 2014 Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/3.0/). Selection and peer-review under responsibility of the International Scientific Committee of The 47th CIRP Conference on Manufacturing Systems in the person of the Conference Chair Professor Hoda ElMaraghy doi:10.1016/j.procir.2014.01.144

Madani Alomar and Zbigniew J. Pasek / Procedia CIRP 17 ( 2014 ) 628 634 629 either failed or misused which has led to unexpected and undesired results. Studies have also revealed that there is a poor fit between management of supply chain and the small and medium-sized enterprises. For example, Arend and Wisner [3] attributed this poor fit to variety of reasons such as improper implementation of supply chain management by the small and medium-sized enterprises, and due to the lack of use of supply chain management to complement strategic focus. Unlike other works, this paper proposes a structured framework that will assist small and medium sized manufacturing enterprises in building a strategic and flexible supply chain performance improvement model. This model considers different market scenarios, two types of supply chain strategies, and supply chain processes based on supply chain operations reference (SCOR) framework. The model relies on analytical hierarchy process (AHP) approach to link and integrate various market scenarios, supply chain processes and supply chain strategies into one comprehensive model. 2. Supply chain performance improvement in small and medium sized enterprises Performance measurement and improvement systems play key roles in developing strategic plans and evaluating organizational objectives. They are also important in assessing a business ability to gain and sustain competitive advantage and directing corrective adjustments and actions as well [1]. Various researchers have linked the success of businesses to the type of performance management and measurement systems used by them as well as to the successful design and implementation of these systems. Other researchers have considered strategic performance measurement system as a means to attain competitive advantage, continuous improvement and ability to respond to internal and external changes [2]. In this sense, the performance measurement system is the instrument to support the decision-making either for launching, selecting actions or redefining objectives [4, 5]. However, the proportion of firms that implement well-known performance measurement and management systems remains low. For example, a study conducted by Gosselin indicated that the types of performance measures used by the Canadian SMEs were rarely connected to strategy. The study also revealed that about 70% of the companies failed to implement well-known strategic performance measurement models [6]. The literature has reported on a set of contributions in supply chain performance measurement. For example, Thakkar proposed a balanced scorecard (BSC) framework for a case organization using an integrated approach of interpretive structural approach and analytical network process (ANP) [7]. Another paper proposed an integrated framework using balance scorecard (BSC) and supply chain operations reference SCOR- model [8]. Bhattacharya et al. proposed a collaborative decision-making approach using fuzzy (ANP) based balance scorecard [9], and the list goes on. 3. Small and medium sized businesses and the challenges Studies show that small and medium-sized enterprises are distinguished from larger firms by a number of key characteristics [10] such as personalized management with little delegation of authority, severe resource limitations in terms of skilled manpower, management and finance, flexible structure, reactive or fire-fighting mentality, informal and dynamic strategies, dependency on small number of customers, limited markets, and high potential to innovativeness. These characteristics are also viewed as challenges that influence the implementation of well-known performance management systems, originally designed for larger firms, in small and medium-sized enterprises [11]. For example, the dynamic strategy of a small business means that these businesses are more frequently revising their decisions than the larger firms. This greatly influences internal operations, and the relations with customers and suppliers. Such behavior requires a more effective system of control with higher capability which will rapidly reflect these changes and their consequences on the internal operations as well as the external relations. These limitations of small manufacturing enterprises emphasize the need for a performance improvement management and control system that effectively shows the key business operations that are written in form of an understandable structure, comprehensive and flexible enough to fit specific needs of each individual enterprise and the changeable market conditions as well. 4. Supply chains and product types Unstable markets and uncertain demands that businesses encounter these days call for dynamic and flexible strategies. Consequently, it is important to assess the products and the market scenarios more frequently than any other time. In pursuing perfection, firms invest significant financial and nonfinancial resources to improve their performance and to maintain their competitive advantage among rivals in the marketplace. There are many improvement and management concepts such as, lean manufacturing, agile manufacturing, six sigma, etc. which are used in industry to improve performance and achieve competitive advantage. However, the costs, the implementation processes and results are not always very promising to many small enterprises. In 1997, Fisher suggested the reason that improvement efforts had not produced the desired results in supply chain performance was due to the misalignment of product types with supply chain strategy. Fisher categorized products into two types and identified two key supply chain strategies. Functional products fit efficient supply chain strategy while responsive supply chain strategy works best with innovative type of products [12], see table 1. The differences between the two strategies lie in the structure and the execution of the supply chain s major processes such as: source, make, deliver and return. However, it is not unusual to see firms run two types of strategies at the same time for product lines or markets. Nevertheless, implementation of the model requires users to be aware of the difference between the two strategies. For instance, the primary goal of efficient supply chain pushes businesses to supply demand at the lowest cost while responding quickly to demand when responsive supply chain is in place. The manufacturing Make strategy depends mainly on lowering costs through high resource utilization for

630 Madani Alomar and Zbigniew J. Pasek / Procedia CIRP 17 ( 2014 ) 628 634 efficient supply chains. In responsive supply chain the manufacturing strategy relies on capacity flexibility against demand and supply uncertainty. The major factors for selecting suppliers are the cost and the quality when adopting efficient supply chain while speed, flexibility reliability and quality are the major factors for selecting suppliers under the umbrella of responsive supply chain. Among these factors, the selection of the most significant one is not a straight forward process and the impact of each and every process or factor in the overall performance varies from business to business and from season to season. Therefore, businesses, especially the small ones, are required to build a supply chain performance measurement system that includes major supply chain activities and related key measures which will allow them to rank, evaluate and prioritize each one based on their preferences. Table 1. Product type, supply chains and linkage. Efficient SC Responsive SC Innovative products Mismatch Match Functional products Match Mismatch 5. Analytical hierarchy process (AHP) The Analytical Hierarchy Process (AHP), introduced in 1970 [13], has become one of the most popular methods for multiple criteria decision-making (MCDM). It is a decision approach designed to assist in the solution of complex multiple criteria problems in a number of application areas. AHP is a problem-solving framework, a flexible and organized method employed to represent the elements of a compound problem, hierarchically [14]. It has been considered to be an essential tool for both practitioners and academic researchers in organizing and analyzing complex problems [15]. AHP has been extensively used for selection process such as comparing the overall performance of manufacturing departments [17], manufacturing supply chain [18], benchmarking logistics performance [16], and vendor evaluation and selection [19]. More researchers are realizing that AHP is an effective technique and are applying it to several manufacturing areas [18]. The AHP procedure to solve a complex problem involves four steps: 1- Breaking down the complexity of a problem into multiple levels and synthesizing the relations of the components are the underlying concepts of AHP. 2- Pair-wise comparison aims to determine the relative importance of the components in each level of the hierarchy. It starts from the second level and ends at the lowest. A set of comparison matrices of all components in a level of the hierarchy with respect to an component of the immediately higher level are built so as to prioritize and convert individual comparative judgments into ratio scale measurements. The preferences are quantified by using a nine-point scale. The decision maker needs to express preference between each pair of the components in terms of how much more important one component is as compared to another. 3- Relative weight calculation: After the pair-wise comparison matrix is developed, a vector of priorities (i.e. eigenvector) in the matrix is calculated and is then normalized to a sum of 1.0. 4- Consistency check: A consistency ratio (CR) is used to measure the consistency in the pair-wise comparison. The purpose is to ensure that the judgments of decision makers are consistent. 6. Supply chain operations reference (SCOR) Supply Chain Council (SCC) is a global non-profit organization formed in 1996 to create and evolve a standard industry process reference model of the supply chain for the benefit of helping enterprises improve supply chain operations. SCC has established the supply chain frameworkthe (SCOR) process reference model for evaluating and comparing supply chain activities and related performance [19]. The SCOR model consists of standard supply chain processes, standard performance attributes and metrics, standard practices and standard job skills. The SCOR model processes include plan, source, make, deliver, return and enable. However, the source, make, and return processes are considered as the execution processes. Each process is broken down to five levels. For example, source process represents the scope or level 1, level 2 is the configuration process where the practitioner has to identify the type of source process i.e. source stocked products, source make-to-order and source engineer-to-order products. Level 3 represents activities and tasks involved in each level 2 process. Level 4 provides workflow and steps involved in each of level 3 processes. In this paper we used level 1 supply chain execution and return processes to the model. The objectives of each process are shown in table 2. Table 2. Major supply chain processes and objectives. Process Objectives Source The ordering, delivery, receipt and transfer of (ss) raw material items, sub-assemblies, product, packaging and/or services. Make (sm) Deliver (sd) Return (sr) 7. The approach The conversion process of adding value to products through mixing, separating, forming, machining, and chemical processes, repair, refurbishment and/or decomposition. Perform customer-facing order management, shipping and order fulfilment activities including outbound logistics. Moving material from customer back through supply chain to address defects in product, ordering, or manufacturing, or to perform upkeep activities Source: (Supply Chain Council, 2011) Manufacturing firms are required to adjust their operations and strategies in order to meet rapid and various business environment changes. The evaluation of the alternative supply

Madani Alomar and Zbigniew J. Pasek / Procedia CIRP 17 ( 2014 ) 628 634 631 chain strategies; effective (ESCS) or responsive (RSCS) requires that the performance of the strategies on source, make, deliver, and return processes to be re-evaluated, reprioritized, quantified and aggregated to capture the new business goals. However, this process is not a straightforward task, since the performance and strategy evaluation process depend on many factors that by nature are interconnected and require a specific level of skill and qualifications that mostly do not exist in many SMEs. The framework outlined in this paper aims to help SMEs construct and build a strategic performance improvement system which involves and links two key supply chain strategies (Efficient or Responsive), and supply chain processes based on SCOR model. In addition, the framework utilizes AHP approach to integrate, evaluate, and prioritize supply chain processes and strategies in one comprehensive model (Figure 1). Overall goal Criteria: Low Average High Demand scenarios Sub-criteria: Supply Source Make Deliver Return chain processes Improving supply chain performance Alternatives: supply chain ESCS RSCS strategies Fig.1. The supply chain performance improvement model. The evaluation of alternative strategies has to be carried out level by level starting from top to bottom. At the second level, there are three possible demand scenarios: low, average, and high demand. The first evaluation process assesses the occurrence probability of the demand scenarios within the planning period. For example, what would be the probability of having low demand during the planning period? The second evaluation process evaluates the relative effects of each process on performance within particular market scenarios. For instance, what are the relative effects of source, make, deliver, and return on the overall performance when the demand is high. The third evaluation process assesses the overall performance of the alternatives. The comparison and the evaluation of each and every component in the criteria and sub-criteria levels must be done through the pair wise comparison procedure described in section 2 of this paper. The supply chain model is created and used for two main reasons. First, SMEs need to think and act based on wider business processes. Secondly, this effort aims at bridging the gap between supply chain, improvement models and SMEs by linking supply chain management and operations, strategies and the small and medium-sized enterprises. The Expert Choice software was used as a tool in building the hierarchal structure of the company s overall goal, market scenarios, processes and supply chain strategies. Export Choice is intuitive, graphically based, and structured in a user-friendly fashion so as to be valuable for conceptual and analytical thinkers, novices, and category [20]. The AHP and Expert Choice software engage decision makers in structuring a decision into smaller parts, proceeding from the goal to objectives to sub-objectives down to the alternative course of action. Decision makers then make simple pair wise comparison judgments throughout the hierarchy to arrive at overall priorities for the alternatives [20]. This model is illustrated in the next section on a case of a medium-sized manufacturing enterprise. As shown in figure 1, two key supply chain strategies are considered at the last level which represents the available alternatives that the decision maker has to choose from based on market conditions, business environment and company s product type and overall goal. The third level, the processes level, includes: source, make, deliver, and return. The second level or the scenario level shows various market conditions: low demand, average demand and high demand. Each and every business encounters one or more of these market conditions, but the question of how, when, and why one supply chain strategy is chosen over the other and on what basis usually remains fairly open. Some of these issues will be highlighted in the next section through the presented case study. 8. Case study A family-owned medium-size manufacturing firm, call it company X, specializes in production of plastic pipes and fittings products. The company s strategy is to produce and deliver high quality products to its customers at the agreed delivery time and process. Most of its customers are large firms, mega project contractors and government agencies. The company has a fairly strong position in its highly competitive market, and its product prices are almost the highest compared to similar products from competitors. Based on the information collected about the company products, policy and operations, the Expert Choice software was used to translate and build the four level hierarchical structures: the goal, scenarios, criteria, and alternatives levels. The evaluation of these alternative strategies was carried out level-by-level, starting from the top down towards the lower levels. The process begins at level two by assessing likelihood of occurrence of a particular demand during the planning period. The evaluation process starts with asking questions such as, what is the probability of having low demand compared to average and high demand during the planning period. The assessment should be based on previous historical data and actual or expected orders. For company X, it is believed that they will be facing a high demand during the first few months in the planning period, thus their preference is to put high probability for high demand. The evaluation process of different scenarios according to company X is shown in table 3. The results of the second level evaluation process show that the possibility of high demand scenario occurrence is relatively higher than others with about a 52% chance. The probability of having average and low demands during the planning period are 36% and 12% respectively, see figure 2.

632 Madani Alomar and Zbigniew J. Pasek / Procedia CIRP 17 ( 2014 ) 628 634 Table 3. Pair-wise comparison at level 2. Probability 0.124 0.359 0.517 Fig.2. The likelihood of different market scenarios. The second step evaluates the relative effects of each criterion process on performance under a specific scenario. For example, what would be the relative effect of source (ss), make (sm), deliver (sd), return (sr), on performance if demand is low? The evaluation process starts with asking questions such as: which process is more important: source or make, source or deliver, etc.? In our case, company X puts more value to make and deliver processes than to source and return, and more value to source than to return process, see table 4. For example, company X gave value of 4 to deliver process compared to source process which means that deliver process is more important than the source process when market demand is low. Table 4. Pair-wise comparison for level 3 under low demand. Process ss sm sd sr ss 1 1/2 1/4 5 sm 2 1 2 7 sd 4 0.50 1 7 sr 0.20 0.14 0.14 1 Under low market demand and based on the evaluation process, the make process is the most important process (0.425 or 42.5%) among the others. Deliver process comes second with 0.366 or 36.6 %. The figure shows that the make and deliver processes are the key players and vital improvement areas when market is low. Note that the relative effect of each process or criterion may vary depending on market conditions or product type. The results obtained from the evaluation of the processes are shown in figure 3.In order value of process 1 0.8 0.6 0.4 0.2 0 Demand scenario supply chain processes Fig 3: Weights of processes under low market demand. to complete the level calculations; one needs two more comparison processes for average and high market demand. The third step addresses the performance of each strategy on each performance criterion. Finally, the overall performance of each strategy can be calculated through the composition process by using Expert Choice. The performance of the two alternatives: efficient and responsive supply chain strategy is shown in figure 4. The initial evaluation process shows that the performance of efficient supply chain strategy (ESCS = 0.510) is better than the performance of responsive supply chain strategy (RSCS = 0.490), given the likelihood for having low, average, and high demand are 12.4%, 35.9%, and 51.7%. value of strategy 1 0.8 0.6 0.4 0.2 0 0.788 0.212 Fig 4: The overall weight of the two alternatives. 9. Results and discussion 0.604 0.396 ESCS 0.615 0.385 0.51 0.49 Market Scenario and overall RSCS The proposed framework was used to develop a model for a specific medium-sized manufacturing company. Notice that the company expectations of having high demand for the plastic pipes and fittings products is about 52%, 36% for average demand and 12% for low demand during the planning period. Within the planning period, the evaluation process clearly shows that focus on efficient supply chain strategy is the most appropriate strategy which company X needs to adopt. However, maintaining the same supply chain strategy will not help in rapidly changing the business environment. As the external environment changes frequently and rapidly, the focus on performance characteristics that are used by businesses could also be changed to reflect the changes in internal and/or external environment. Generally speaking, the changes in the performance components can be made by adding, eliminating, replacing, or even reprioritizing them. For example, a process such as, the make process which has high priority may move down to low priority in other circumstances or because of changes in the internal and external business environment. In the case presented, the judgments of the likelihood of having high, average and low demand are based on expected market demands of company X. However, the demand may change at any time during the planning period, which in some cases leads to remarkable changes in supply, manufacturing, and shipping plans. These types of changes usually call for adjustments in business operations, policies, or even call for a new business goal in order to meet the new challenges. For this reason, sensitivity analyses to evaluate changes in scenarios during planning period of company X were used. The model remains as is with the same market scenarios in the second level, the four major processes in the third level, and choice between two types of supply chains in the last level. The adjustments to the input data start at level 2 with market scenarios by changing likelihood of demands. For example, the likelihood

Madani Alomar and Zbigniew J. Pasek / Procedia CIRP 17 ( 2014 ) 628 634 633 of having high demand was adjusted to 100% in order to capture and observe the changes in the model outputs. The 100% high demand market resulted in selection of responsive supply chain strategy shown in table 5. The model was adjusted again, but this time to 100% low demand and it chose an efficient supply chain strategy as the best strategy for the low demand market. Similar steps were conducted to reset the model to 100% average demand. With this setting, the model gave the priority to efficient supply chain strategy but with less weight compared to 100% low demand scenario, table 5. As shown in the table, the company needs to efficiently conduct its supply chain in order to improve performance, maintain competitive advantage and compete successfully. The results also verify Fishers idea about the link between product types and the type of supply chain strategy to use. According to fisher, efficient supply chain strategy works well with functional types of products which has been proven through the case, assuming that plastic pipes and fittings are functional types of products. Table 5. Different market scenarios call for different supply chain strategy. Probability of market demand (%) Strategy selection in % Strategy to adopt Low Av. High Efficient Responsive 12.4 35.9 51.7 51 49 Efficient 100 0 0 79 21 Efficient 0 100 0 60 40 Efficient 0 0 100 39 62 Responsive However, the results also reveal that in the high market demand, the company needs to switch to responsive supply chain. The model also shows a shift among supply chain processes. For example, in low demand, the make process is the most important process while the source process in the average demand. In high market demand, the make and the deliver processes are the major players of responsive supply chain for the company. The company considers a monthly demand of less than 2500 tons as low, less than 5000 average and above 5000 tons as high demand. Figure 5 clearly shows that in the first five months the company has to run responsive supply chain as these months represent high season for the plastic pipes and fittings products. Generally, when probability of high market demand is more than 51%, responsive supply chain is highly recommended with a focus on the Make and Deliver processes. Figure 5. The forecasted market demand and the selection of supply chain strategy. 10. Conclusion A quantitative model for supply chain performance improvement with the example used illustrates how practitioners especially in SMEs can implement the model in order to improve business performance. Using SCOR model helped in identifying a set of supply chain processes that are generally used to evaluate supply chain performance in larger firms. The use of AHP approach was useful in structuring and simplifying the model to four levels: overall goal, scenarios, criteria, and alternatives. The use of Expert Choice software facilitated an outstanding environment in structuring the model hierarchically, carrying out evaluation by level, and making final alternatives evaluation and selection. Some sensitivity analysis was performed in order to sense the difference when changes occur in the external environment through the model. We noticed that the link between product type and supply chain strategy type works very well which proves the previous suggestions but when market demand was added into the whole picture it gave another look. The authors of this paper believe that the outlined model achieves important directions of non-traditional performance improvement systems such as flexibility, easy and ready to use, up to date, and comprehensive approaches. Unlike previous supply chain performance models and implementations of AHP and or SCOR model, the proposed model introduces a new approach that SMEs can use to evaluate internal overall performance and the selection of supply chain strategy based on external conditions. This can be done by combining the two approaches correctly. The proposed model also efficiently engages users, mainly in SMEs, to the world of supply chain management and operations. References [1] Holban I. Strategic performance measurement system and SMEs competitive advantage. In: International conference on economics and administration. 2009. [2] Cocoa A, Alberti M. SME's three steps Pyramid: A new performance measurement framework for SMEs. In: 16th International Annual EUROMA Conference: Implementation realizing Operations Management Knowledge.; 2009. [3] Arend R, Wisner J. Small business and supply chain management: is there a fit? Journal of Business Venturing. 2005; 20 (3): 403--436. [4] Bititci U. 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