“an integrative philosophy to manage the total flow of a distribution channel from the supplier to the ultimate user.” Characteristics of Supply Chain Management and the Implications for Purchasing and Logistics Strategy Martha C. Cooper The Ohio State University Lisa M. Ellram Arizona State University Purchasing and logistics. The concepts of a supply chain and supply chain management are receiving increased attention as means of becoming or remaining competitive in a globally challenging environment. What distinguishes supply chain management from other channel relationships? This paper presents a framework for differentiating between traditional systems and supply chain management systems. These characteristics, are then related to the process of establishing and managing a supply chain. A Particular focus of this paper is on the implications of supply chain management for Supply chain management is defined as “an integrative philosophy to manage the total flow of a distribution channel from the supplier to the ultimate user” (1]. This means greater coordination of business processes and activities, such as inventory management, across the entire channel and not just between a few channel pairs. There is an emerging literature regarding the concept of a supply chain (2), the advantages ‘of forming supply chains over other alternatives {3] and the management of supply chains [4]. Building upon this work, there is a need to explore what differentiates a supply chain management approach from other channel relationships. The characteristics identified may have different influences on the process of establishing and managing a supply chain. Three general stages of the process are examined: the initial decision to form or join a supply chain; the strategic planning before, during, and after the formation; and the on-going operations of the supply chain. Thus, the purposes of this paper are: 1) to identify characteristics of supply chains and 2) to examine when these characteristics might affect the channel management process. The paper consists of four sections. Section one is a brief background on supply chain management. Section two identifies characteristics that distinguish a supply chain from other channel relationships. Next, these characteristics are overlaid on the process of developing and managing a supply chain with the roles that purchasing and logistics play examined in greater detail. The paper concludes with a brief summary and suggestions for future research. The Supply Chain Management Concept Supply chain management is viewed as. lying between fully-vertically-integrated systems and those where each channel member operates completely independently In a fully-vertically-integrated system, the functions are performed within one company. One traditional example is the tire industry where some companies grew their own rubber, manufactured the tires, and sold through their own retail stores or directly to original equipment manufacturers (OEMs). Economists (51 examined conditions, such as economies of scale and availability of suitable outside services, under which Volume 4, Number 2 1993 Page 13— — eeeeSeseSeSSsSsSeSeSeSeSeEeEe functions should be vertically integrated or should be performed by another entity (outsourced). Unless there is complete vertical integration, there is a channel involving at least two entities. In fully-vertically-integrated systems, the structural relationships among the functions, such as marketing and logistics, are defined by top management. The functions will work with each other indefinitely, so their interactions are more predictable. When functions are performed by independent entities with few oF no ties to one another, the relationships are more tenuous. The players can change from one transaction to the next. In contrast, supply chain management may be likened to a well- balanced and well-practiced relay team. A relay team is more competitive when it practices with the same core lineup so that each runner knows how to be positioned for the handoff, While relationships are strongest among those who directly pass the baton, the entire team must be coordinated to win the race. This is the major benefit of supply chain management. Missed handoffs may well translate to lost market share in today’s competitive marketplace. Development of Supply Chain Management The term supply chain management first appears in the logistics literature as an inventory management approach. Houlihan [6] describes excess inventory buildup as akin to snowdrifts against a fence. The more independent entities, the more fences with snow drifts and hence, the more inventory in the system. Supply chain management looks across the entire channel, rather than just at the next entity or level. Many functions and firms must be involved in the effort to reduce inventory system-wide. Better information systems can curtail the need for large safety stocks of production inputs and finished goods. Shorter setup times and shorter production runs keep inventory low but can increase production costs. These cost increases should be much less than the savings from lower inventories. Reasons for Forming Supply Chains Three major reasons identified in the literature and by companies are 1) to reduce Page 14 inventory investment in the chain, 2) to increase customer service, and 3) to help build a competitive advantage for the channel [7]. The inventory reduction efforts alone have resulted in significant channel- wide savings (8]. Increased stock availability and reduced order cycle time occur through channel-wide inventory management and closer coordination among channel members, [9]. These customer service dimensions improve provided that only redundant stock is removed from the system, leaving intact sufficient safety stock to meet desired service levels. The amount of safety stock required may also be lower due to reduced uncertainty. Examining which firms in the channel have particular cost advantages, such as lowest labor rates or costs of capital, ‘can result in advantages for the supply chain ‘as a whole, such as lower prices for products [10]. Managing the supply chain as an entity can help create a competitive advantage and greater profitability [11] for the channel through coordinated attention to costs, better customer service, and lower inventories. Examples Two scenarios may illustrate the supply chain management concept. A major ‘objective or a major benefit of establishing a supply chain is suggested for each example. Scenario #1 - reduced channel- wide inventory, increased service reliability. Du Pont has reduced order cycle time and pulled inventory out of some of its product lines by working with suppliers and customers. Du Pont concentrated on the planning process throughout the supply chain to affect the changes [12]. All functions focus on customer requirements. ‘Asa result, cycle times have been reduced as much as one quarter, service reliability has increased, and there has been significant, savings in inventory. For example, one supplier now manages the inventory, handling and distribution of spare parts. This, increased supplier responsibility allows Du Pont to focus on customer - related issues rather than on managing many suppliers. Scenario #2 - reduced order cycle time as a competitive advantage. The Limited owns approximately 4,400 retail clothing stores under several different The International joumal of Logistics Managemen «supply chain ‘management may be likened to a well- balanced and well- practiced relay team.a channel which enjoys lower costs than its ompetitors can allocate the savings to more productive uses... .a supply chain ‘management approach involves channel-wide ‘management of inventories. store names. The Limited also owns MAST Industries which contracts for the manufacture of clothing. MAST bids on supplying various Limited lines and can also bid for other non-Limited contracts. The Limited does not own the manufacturing or materials suppliers. MAST speed sources from twenty countries. Speed sourcing is defined as “the shortest possible time to elapse between identifying a fashion item or trend and getting it into a customer's distribution channel in depth" [13]. Logistics is viewed as a competitive tool in that garments can be made and distributed to stores in a short period of time. The 1990's target is 30 to 35 days. This permits reorders of more popularly selling items before the fashion season is over. Characteristics of Supply Chain Management To consider supply chain management to be a different approach from other channel relationships, there should. be some characteristics that could be used to differentiate it. Based on the literature on business-to-business relationships {14} and supply chains [15], as well as discussions with executives, the following characteristics ‘emerge: inventory management approach, total cost approach, time horizon, amount of mutual sharing and monitoring of information, amount of coordination of multiple levels in the channel, joint planning, compatibility of corporate philosophies, breadth of supplier base, channel leadership, amount of sharing of risks and rewards, and the speed of physical and information flows within and between entities. These characteristics are contrasted between supply chain and traditional, independent relationships in Table 1. Those characteristics derived from the partnership/ strategic alliance literature [16], which usually deals with only two entities, are proposed here for wider channel acceptance and imple- mentation than just one channel pair. Inventory Management Approach In contrast with each firm establishing its own inventory management policy independent of others in the channel, a supply chain management approach involves channel-wide management of inventories 117]. This approach does not necessarily seek to eliminate most of the inventory from the channel, such as zero inventory or just- in-time systems, but only the redundant inventories in the system. This emphasis on inventory reduction may be a key difference between supply chain management and vertical marketing systems, which concentrate on the control or equity relationships of firms, such as franchise agreements, Cost Efficiencies A supply chain management approach implies a channel-wide evaluation of costs to identify total cost advantages [18]. For example, some channel members may enjoy lower borrowing rates, especially when the supply chain includes international channel members. Other key areas for analysis are lowest labor rates, most effective processes, most capital available, lowest cost of capital, lowest tax rate, most advantageous logistics costs, and most depreciation or other tax advantages [19]. Less-coordinated channel structures leave each firm to ils own devices for cost control. However, a channel which enjoys lower costs than its competitors can allocate the savings to more productive uses, such as research and development or lowering its price to the customer. ‘Time Horizon An extended time horizon is important to enduring relationships [20]. Each member expects its membership in the supply chain to continue for a considerable if not an indefinite time into the future. Otherwise, investments in integrated information systems and operating systems may be too high for payback during a shorter relationship life cycle. While there is often a fixed contractual time span, the relationship is expected to extend beyond the life of the contract indefinitely. ‘Amount of Mutual Information Sharing and Monitoring The entire channel is managed more effectively when members have access to information pertinent for the conduct of their business [21]. Information monitoring is not just down the channel, as from manufacturer fume 4, Number 2 1993 Page 15Table 1 ‘Traditional and Supply Chain Management ‘Approaches Compared Element Inventory Management Approach “Traditional Independent forts ‘Supply Chain ‘Joint eduction in| ‘channel inventories Total Cost Approach Minimize firm costs CChannel-wide cost efficiencies "Time Horizon ‘Show term Long term “Amount of Information Sharing ‘and Monitoring Limited to needs of Curent transaction ‘As requited for planning and monitoring processes “Amount of Coordination of Multiple Levels in the Channel ‘Single contact for the transaction between channel pairs Multiple contacts ‘between levels in firms ‘and levels of channel ‘Joint Planning Transaclion-based On-going ‘Compatibility of Coxporate Philosophies Not relevant ‘Compatibie atleast for key relationships Breath of Supplier Base tisk Targe to increase ‘competition ard spread ‘Smale inevoass ‘coordination ‘Channel Leadership Not needed Needed for coordination focus “Amount of Sharing Cf Risks and lewards Each on its own Fisks and rewards shared over the long term “Speed of Operations, Information and Inventory Flows -warerouse™| orientation (storage, safety stock) interrupted ty barriers to lows; Localized to channel pairs “DC orientation (inventory velocity) interconnecting flows; JIT, Quick Response across the channel to customer, but in both directions. It is not necessary that all channel members have access to the same information, only that Which is needed for them to better manage their supply chain linkages. For example, certain channel members need to know what to do in the case of a chemical spill but do not need to know the proprietary chemical formulae or production processes. This approach to information sharing must pervade the channel for the supply chain Management concept to exist. In a traditional channel situation, information exchanged is, limited to the needs of the current transaction [22]. Amount of Coordination of Multiple Levels of the Channel! Three kinds of coordination can be identified: across channel members, across management levels, and across functions. In traditional, independent systems, the focus is —— Page 16 ‘on the specific transaction between buyer and seller. The supply chain management concept implies that most or all members of the channel coordinate their efforts. For example, a manufacturer may work with the supplier’s supplier. While the day-to-day interaction is most focused on immediate channel pairs, the goals of the entire channel guide operations Several management levels within the firm are also involved in the supply chain management process. The top managements of the various members will be involved in the planning process. The operational managers may be in almost constant contact either verbally or via electronic communications with their counterparts in other organizations. There may well be more contacts at different management levels of functions and these may occur more frequently than within traditional channels. It is important that functions within the member firms understand the supply chain Jtis important that functions within the member firms understand the supply chain management concept. The International Journal of Logistics Managemerlume 4, Number 2 management concept. Strong functional turf battles are dysfunctional to the overall operation of the firm, and hence the supply chain, The silos are being broken down by team management approaches [23]. The new focus is on the business processes, such as order fulfillment. The organization's structure may be redesigned to better manage the business processes in a supply chain firm (24). Joint Planning In traditional channel systems, planning between channel members focuses on the transaction and is short term, such as the delivery terms of a particular purchase order. If the channel is to be more closely coordinated, then joint planning of such activities as material flows and development ‘of new products is in order. There is a continuous process of planning, evaluation, and improvement over multiple years [25]. ‘A key difference for supply chain management is the wider system planning than just two levels. While joint planning may be done in pairs as with partnerships 126}, supply chain management involves more pairs in the planning process. The supply chain management concept would suggest that many entities in the channel should take part in the planning. ‘Compatibility of Corporate Philosophies Compatible comporate philosophies are less important for one-time or infrequent transactions than for longer term relationships. Here, the term compatible corporate philosophies is used to mean agreement on the basic directions for the channel, not necessarily similar operating procedures and certainly not agreement on every issue. A study of twelve thousand executives around the world indicated that compatible corporate cultures was most important in long term supplier/buyer relationships (271. Incompatible corporate cultures make coordination more difficult and moving the firms in the same direction less likely [28]. Compatibility goes beyond individual personalities as the individuals involved may change over the life of the corporate relationship. Less compatible corporate cultures may exist between certain pairs in supply chains [29], but this makes the continued relationship more challenging. Breadth of Supplier Base Traditional systems often involve several suppliers of the same materials or services to increase competition and to obtain more favorable terms of sale. This approach also spreads the risk of shutdown if one supplier becomes suddenly unable to fulfill the contract or order. The supply chain management approach suggests that the supplier base be reduced so that the firms can be more closely integrated. A reduced supplier base permits closer management and coordination of a few relationships [30] Channel Leadership Organizations are characterized by having a top management structure, often headed by a strong chief executive. The supply chain clearly needs to have leadership in order to develop and execute strategy [31]. Traditionally, channels have a leader which is an organization which manages the channel and resolves conflict (32). tn U.S. consumer channels, large retailers appear to dominate. However, as many firms are moving more toward a team structure internally, and in working with third parties, a team approach to supply chain leadership may also emerge. ‘Sharing of Risks and Rewards Williamson, Palay (33), and others have suggested that a close relationship requires that channel members be willing to share risks and rewards over the long term. This implies a win-win situation over the life of the supply chain. In traditional systems, channel members are relatively independent, with a short term approach that does not consider counter-balancing of risks and rewards over time. If a very strong leader commands a sufficient market share of the supplier's business, the supplier may choose to remain in the supply chain even though the only sharing of rewards is the privilege of doing business in the channel, or the sharing is quite limited. This may be characterized by a “win-not lose" relationship rather than the expected “win-win” one. Speed of Operations Information systems, such as electronic data interchange (ED!), can contribute to the Page 17Ss speed of operations through reduced order cycle times on the purchasing side. Information technologies such as EDI and barcoding help manage the flow of goods on the distribution side, [34] such as faster picking and dispatching. While these technologies are currently applied in many channels, their use is localized by function or a few channel members. A supply chain management approach examines the whole channel and exploits these technologies channel-wide. Traditional systems might be characterized as having a “warehouse” orientation with emphasis on storage and large safety stocks to prepare for variations in demand. There are barriers to the flows of information and inventory between firms. The flow of goods is interrupted by stops at plant warehouses, regional and local warehouses. Improvements in inventory or information flows are often localized to immediate channel pairs. In contrast, the supply chain approach may be more of a ‘distribution center" orientation emphasizing, inventory velocity and interconnected information flows across the entire channel. Just-in-time and quick response systems would be the extreme of this approach when applied system-wide. ‘Assuming a supply chain is to be formed, the next section addresses how the characteristics identified might affect the initial decision, the planning, and the on- going operation of the supply chain Establishing and Managing The Supply Chain First, the process for establishing a supply chain is examined with respect to the characteristics just discussed. Table 2 suggests a framework to examine how supply chain management characteristics influence the Table 2 Planning and Managing the Supply Chain Element Trilial Decision’ Planning Stage’ Inventory Management Approach Potential savings is a major ofiver ‘Channet-wide valuation Continued search for reductions Total Cost ‘Approach Potential ‘tigger “Assess which ‘members have ‘advantages Exploit cost advantages "Time Horizon Long tem ‘Shomer term “Amount of Information Shating and Nontoring Planning the system Required “Amount of Coordination of Multiple Levels in the Channel To establish philosophy ané goals Required Joint Planning ‘Swaiegic level ‘Operations level Compabiity Corporate Philosophies Prerequisite ‘Confirm compatibility Confirmed ‘Breadth of Supple: Base Potential trigger ‘Choose right suppliers ‘Channel Leadership | Prerequisite Tnfluence channel formation quired for continued leadership, “Amount of Sharing ‘of Fisks and Rewards Balanced or “aif inlong run Wiling to take short term hits ‘Speed of Operations, Information and Inventory Flows Potential trigger Key planning Tnereased concem over me ie of he cman 1. The ial Decision votes the evaluation of and decison to orm or ener a supply chain, 2. The Panning Stage includes both ie al planingto establish the supply chan and tne ongoing sratogie planning ‘2. When the Supply Cain eperatonl, there wl be continuing issues for managing the dayto-cay operations. «athe supply chain approach may be more of a “distribution center” orientation emphasizing inventory velocity and interconnected information flows across the entire channel. Page 18 The International Journal of Logistics Managemerlume 4, Number 2 Tables ing and Logistics (P & L) Contributions Purch to the Management of the Supply Chain (SC) Element Tritial Decision Planning inventory Management Approach ‘en top management to Hol ientiy where savings potent savings ‘Alon top - ‘management to potent savings. Total Cost Approach Examing PAL channel cost advantages Time Horizon Long term ‘agreements for arts and sanvicos “Arount of Information Sharing and Monitoring ‘entity current systoms, plan Interfaces ‘Amount ot Coordination of Mutiple Levels in the Channe! Selection of tied panies involve P&L ‘oint Planning| ‘dent potential ‘SC participants Pat Included Functional planning Compaibitiy of Input on cuture Corporate Philosophies Frontine interactions Breadth of Suppor Bese, ‘Wenily polenta suppor Wontor performance Prequailying| suppers ‘Chennel Leaderchip Facials planning ‘Suppor leaders goals ‘Amount of Sharing of Pisks and Rewards Determine cost sharing arrangements Koop track forP aL ‘Speed of Operations, Information and Inventory Flows Teeny Inventory and improvement information ‘opportunites initial decision to form or join a supply chain, influence planning for the formation of the supply chain and subsequent strategic planning, and influence the on-going ‘operation of the supply chain. The roles that purchasing and logistics can play are discussed more specifically in relation to Table 3. Initial Decision Supply chain management should not be entered into without considering potential benefits and pitfalls 135]. There are several potential triggers that would initiate the development of a supply chain management approach. Of the characteristics discussed in the previous section, there may be objectives to: reduce inventory levels, improve total cost efficiencies, reduce the supplier base, and/or increase the speed of operations. One major driver is the quest for channel-wide inventory reductions. Purchasing and logistics play key roles here due to their direct influence on and management of inventories. Potential cost efficiencies could be a trigger depending on which ones are examined prior to the establishment of the chain. Purchasing and logistics would be in a position to alert top management about potential savings from channel-wide inventory and other cost efficiencies. ‘The decision to reduce the number of suppliers may cause the firm to review their entire supplier base philosophy. Reducing suppliers throughout the supply chain would move toward a supply chain management approach. The search for improved speed of operations, inventory flow, and information access may also drive @ supply chain management philosophy. Compatible corporate philosophies 136} would not be a sufficient reason for forming a supply chain but may be a prerequisite for selecting key members to Page 19———— SSS belong to the chain. There should be at least a willingness to support the goals of the chain among members selected. Channel leadership is a prerequisite, because there must be a “champion” for supply chai formation and coordination, based on discussions with executives. Purchasing and logistics can provide corporate culture assessments, identify potential supply chain members, and evaluate potential increases in the speed of operations. With the knowledge about suppliers and customers routinely collected bby purchasing and logistics, these functions are in a position to assess areas of strength and weakness of potential supply chain members as the number of suppliers is reduced. Purchasing and logistics also develop some sense of the potential amount of cooperation to be expected from other members. This information can prove quite valuable when selecting supply chain members as well as working with them on an ‘on-going basis. Planning for the Supply Chain Philosophy Table 2 suggests issues to consider regarding each supply chain management clement during the planning stage. There will be channel-wide searches for the appropriate places to reduce inventory, reduce other costs, and increase the speed of the ‘operations, information, and inventory flows 137]. The decisions in these areas will influence the final form of the supply chain and its competitiveness. Purchasing and logistics can identify where inventory savings are possible, along with manufacturing for work-in-process levels. All functions can assess which function costs can be reduced channel-wide, such as logistics identifying excess transportation capacity The firm may not be organized internally to take advantage of supply chain membership [38]. More coordinated information systems and increased sharing of information are probably needed [39]. Since purchasing and logistics are in the flow of information, they are able to suggest changes to the system for improved coordination, information flow, and planning of new or reconfigured distribution networks. The focus during the initial planning will be strategic. Building a supply chain will involve all levels of management. The overall philosophy and goals of the chain must be determined. In addition, there will be discussions regarding how to balance risks and rewards across members and time. Without top management support, the changes in the organization needed to interface with other supply chain members will not occur [40]. Top level functional support is required in order for the other levels within the function to buy into the supply chain concept, particularly if turf or tradition are well-entrenched [41] Initial and on-going strategic planning should include input from purchasing and logistics [42]. Long term decisions about the buyer-seller relationships will be made at this, point, such as purchasing agreements for parts and logistics decisions about Outsourced services. Purchasing and logistics can also suggest cost-sharing arrangements to spread the risks of investments in new information and distribution networks. The supplier base will be narrowed as supply chain members are selected. Prequalifying suppliers involves examining the ability of suppliers to fulfill a set of criteria deemed necessary to provide a consistent, high quality supply of materials. The channel leader will have a profound effect on the character and makeup ‘of the supply chain. Firms will be working closely to confirm that there is cultural compatibility. Strategic planning during the life of the supply chain will be heavily influenced by the channel leader. This planning should consider the need to provide incentives for continued supply chain participation among channel members. Implementation and Operation It is likely that many levels of management within the firms will be involved during the implementation phase and on-going operations. The top levels will examine more strategic issues of the relationship, while middle and line managers will be managing the day-to-day operations. Frequent communication occurs either person-to-person or electronically to track goods movement and the effectiveness of the interfaces among the firms in the supply chain, Flexibility or the assumption of short term difficulties may be required for the benefit of the supply chain. However, these are expected to balance out over the length ‘of the relationship [43] Purchasing and logistics can provide corporate culture assessments, identify potential supply chain members, and evaluate potential increases in the speed of operations. je EE NaEEEE The International journal of Logistics Managemer Page 20Target customer service evels, such as throughput and order cycle time, should be agreed upon across the channel members and understood by all levels of ‘management. The traditional roles of purchasing and logistics personnel as inventory ‘managers, information satherers and dissemina- tors, and negotiators should serve the firm well in the new supply chain management atmosphere. Table 4 Purchasing and Logistics Contributions to Supply Chain Management Provide leadership in the process Provide negotiation expertise Present a broad, interfirm perspective Provide inventory management expertise Facilitate information links between and within firms Provide expertise in working with third parties All levels in the supply chain must understand the commitments for the supply chain to operate smoothly. Target customer service levels, such as throughput and order cycle time, should be agreed upon across the channel members and understood by all levels of management. The methods of measuring performance, such as what constitutes fill cate and the means of monitoring the processes, are designed at the beginning and maintained by the operations managers. A goal of supply chain manage- ment is continuous improvement. This includes increased speed of operations, as well as improved information and inventory flows, due to better coordination and focused goals across supply chain member Key Roles of Purchasing and Logistics Table 4 illustrates how purchasing and logistics can contribute to establishing and ‘managing the supply chain, They will be key functions in the operation of the supply chain and should provide leadership in its formation and management. In many cases, they will manage the information flows for sharing and monitoring purposes. They are ‘on the front line, along with marketing, for coordinating between firms. They may be in a good position to assess whether the risks and rewards are in fact being shared from purchasing and logistics standpoints Purchasing and logistics managers should take advantage of their unique positions and knowledge to play leadership roles in the design and implementation of integrated ‘supply chains. Purchasing and logistics, along with marketing, have served boundary-spanning roles OUTSIDE the firm. Purchasing interacts primarily up the channel with suppliers while logistics and marketing have traditionally concentrated on the downstream aspects with customers and third party providers. However, logistics functions have also assisted purchasing to achieve better coordination of inbound transportation and warehousing [44]. Both purchasing and logistics have experience negotiating contracts and dealing with outside suppliers in general which can be utilized in forming supply chain relationships. Information about the external environment is collected by both functions and passed on to the firm, Both purchasing and logistics have served key boundary-spanning roles INSIDE the firms. Purchasing interfaces with the functions who have purchasing requirements or changes and with the planning and the payments functions. Logistics interacts with marketing via customer service and with manufacturing with regard to product availability. Thus, both functions already have ties with most departments within the organization. This permits them unique perspectives on more effective interfirm and intrafirm communications and integration. The traditional roles of purchasing and logistics personnel as inventory managers, information gatherers and disseminators, and negotiators should serve the firm well in the new supply chain management atmosphere, Conclus This paper suggests a set of characteristics that in combination would iS dlume 4, Number 2 1993, Page 21SSS differentiate supply chain management approaches from other channel systems. These include means of working more closely together, such as coordination across firms and management levels within firms, sharing and monitoring of information, and joint planning. Supply chain management also requires a long term orientation; the relationship is expected to extend over an indefinite horizon with sharing of risks and rewards balanced over time. The expected results include a more competitive channel through reduced channel-wide inventory, channel-wide total cost efficiencies, and faster movement of operations, information, and inventory. One organization may need to take a leadership role to manage the activities and direction of the channel. The supply chain characteristics identified may have different levels of importance at different stages in the process of establishing and managing supply chains. Purchasing and logistics functions have critical roles to play in the success of supply chains through their knowledge and expertise, particularly in the areas of information and inventory management. These functions should take leadership roles, in the design and implementation of supply chain management. Future research should be designed to verify the nature of the relationships suggested by the literature and discussed here. It is not known whether all of the characteristics in Table 1 are necessary for a supply chain management approach to exist or whether some supersede others. For example, it may be that a strong channel leader will force a supply chain system, regardless of the sharing of risks and rewards or compatible corporate cultures. Some specific research questions are listed below which need to be addressed to advance the knowledge of supply chain management as an approach separate from other channel relationships, How do supply chain members more than one level apart interact? Is there always coordination more than one level away? Preliminary case studies and a review of the literature indicate that some ‘companies do not seem to manage beyond the adjacent level, leaving those relationships to be managed by the adjacent channel member. Other examples perform joint planning across multiple levels. How many levels of management are involved in interfirm activities? Ic Is suggested in the present paper that interfirm management activities occur at the strategic, tactical, and operational levels which would involve most levels of management. The key functions and management levels should be identified. ‘Are supply chains characterized by one strong leader or does a multi-firm leadership approach also work? In vertical marketing systems there is a channel leader, especially for franchise systems. Does this carry over to supply chains where the emphasis is on inventory reduction, cost control, and improved customer service, as well as providing a sustainable competitive advantage? Are all hypothesized character istics in all supply chains to some degree or are there key drivers that must exist while others appear in varying combinations? Since the original goal of supply chain management is system-wide inventory reduction, this characteristic should exist in all supply chains. Which others are required, or appear only in combination with other characteristics is a matter for future investigation. Research on the supply chain management approach is needed to help ‘guide managers in determining whether they should initiate or become part of supply chains. Many of the pieces discussed here have been developed through the economics and relationship literatures. However, how these pieces are put together with channel- wide inventory management and improved information technologies represents new ‘opportunities for both business and academia. References [1] Ellram, Lisa M. and Martha C. Cooper, “Supply Chain Management, Partnerships, and the Shipper-Third Party Since the original goal oi supply chain manage- ment is system-wide inventory reduction, this characteristic should exist in all supply chains. ———— The International Journal of Logistics Managemer Page 22Volume 4, Number 2 Relationship,” International journal of Logistics ‘Management, Vol. 1, No. 2 (1990), pp. 1-10. [2] Houlihan, John B., ‘International Supply Chains: A New Approach”, Management Decision, Vol. 26, No. 3 (1988), pp. 13-19; Jones, Thomas C., and Daniel W. Riley, "Using Inventory for Competitive Advantage through Supply Chain Management”, The International Journal of Physical Distribution and Materials ‘Management, Vol. 15, No. 5 (1985), pp. 16- 26; Stevens, Graham C., “Integrating the Supply Chain”, International Journal of Physical Distribution and Materials ‘Management, Vol. 19, No. 8 (1989), pp. 3-8. 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Gordon, “Improving Inventory Productivity by Compressing Cycle Time and Segmenting the Product Line,” presentation at the Council of Logistics Management Annual Meeting, Oak Brook, IL, (October, 1992). 113] Johnson, C. Lee and Martin Trust, "1000 Hours to Market,” W. Wayne Talarzyk, ed., Manufacturing Excellence: Strategies for the 2 Ist Century, Proceedings of the Sixth Biennial W. Arthur Cullman Symposium, Ohio State University, Columbus, Ohio, (May 20, 1992), pp. 16-18. [14] Gardner, John, and Martha Cooper, “Elements of Strategic Partnership,” Partnerships: A Natural Evolution in Logistics, J. E. McKeon ed., Cleveland: Logistics Resource, inc., 1988, pp. 15-32; Macneil, lan R,, The New Social Contract, an Inquiry into ‘Modern Contractual Relations, New Haven, CT: Yale University Press, 1980; Palay, Thomas, “Comparative | Institutional Economics: The Governance of Rail Freight Contracting,” Journal of Legal Studies, Vol. 13 (1984), pp. 6-17; Williamson, Oliver E., ‘Markets and Hierarchies: Analysis and Anti- trust Implications, New York: Free Press, 1975. (15] Cavinato, Joseph L., (1991), op. cit; Houlihan, John B., (1985), op. cit. [16] Gardner, john T. and Martha C. Cooper, (1988), op. cit.; Macneil, lan R., 1980, op. cit.; Palay, Thomas, (1984) op. cit, 117] Ellram, Lisa M.and Martha C. 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(271 Kanter, Rosabeth Moss, “Transcending Business Boundaries: 12,000 World Managers View Change,” Harvard Business Review, Vol. 69, No. 3 (May-lune, 1991), pp. 151-154 [28] “Building Successful Global Partnerships,” The Journal of Business Strategy, Vol. 9, No. 5 (1988), pp. 12-15; Main, Jeremy, “Making Global Alliances Work,” Fortune, (December 17, 1990), pp. 121-126. [29] Gattorna, John L., Norman H. Chorn, and Abby Day, “Pathways to Customers: Reducing Complexity in the Logistics Pipeline,” International Journal of Physical Distribution and Materials ‘Management, Vol. 21, No. 8 (1991), pp.5 11; Hewitt, Frederick, (1992), op. cit.; Main, Jeremy, (1990), op. cit. (30) Ellram, Lisa M. and Martha C Cooper (1990), op. cit; La Londe, Bernard J. and Martha C. Cooper, Partnerships in Providing Customer Service: A Third Party Perspective, Oak Brook: Council of Logistics Management, 1989. [31] Ellram, Lisa M. and Martha C. Cooper (1990), op. cit [32] McCarthy, E Jerome and William D. Perreault, Jr, Basic Marketing, Homewood, IL: tnwin, 1990, Chapter 11 [33] Williamson, Oliver E., 1975, op. cit; Palay, Thomas (1984) op. cit. [34] La Londe, Bernard J. Martha C. Cooper, and Thomas G. Noordewier, Customer Service: A Management Perspective, Oak Brook: Council of Logistics Management, 1988, [35] Ellram, Lisa M. and Martha C. Cooper (1990), op. cit. [36] Gardner, John T. and Martha C. Cooper, (1988), op. cit.; Kanter, Rosabeth Moss (1991), op. cit. [37] Cavinato, Joseph L., (1991), op. cit. [38] Hewitt, Frederick, (1992), op. cit. (39) Ellram, Lisa M. and Martha C. Cooper (1990), op. cit. {40} Hewitt, Frederick, (1992), op. cit. 141} Cooper, Martha C., Daniel €. Innis, and Peter R. Dickson, 1992, op. cit [42] Cooper, Martha C., Daniel E. Innis, and Peter R. Dickson, 1992, op. cit {43} Gardner, john T. and Martha C. ‘Cooper, (1988), op. cit. [44] Cooper, Martha C., Daniel E Innis, and Peter R. Dickson, 1992, op. cit. Martha C, Cooper is Associate Professor of Marketing and Logistics at the Ohio State University. She received a B.S. in Math/Computer Science and a Masters in Industrial Administration from Purdue University. Her doctorate is from Ohio State. Professor Cooper's research interests include the role of customer service in corporate strategy, supply chain management and partnership dimensions, and the role of information technology in logistics practice and education. She has co- authored three books on customer service, partnerships, and strategic planning. ‘She has published In several journals, including The international Journal of Logistics Management, The International Journal of Physical Distribution and Materials Management, The Journal of Business Logistics, The Logistics and Transportation Review, and The Transportation Journal. Phone: 614-292-5761. Lisa M. Ellram is Assistant Professor of Purchasing & Logistics Management at Arizona State University. Dr. Ellram received her B.S.B. and M.B.A. from the University of Minnesota, and her Ph.D. from the Ohio State University. She is a Certified Purchasing Manager, Certified Public Accountant, and Certified Management Accountant. Her current research interests include total cost of ownership, international and domestic supply chain management, buyer-seller relationships, and purchasing strategy. Dr. Ellram's publications have appeared in The Intemational Journal of Physical Distribution and Materials Management, The International Journal of Purchasing and Materials Management, The international Journal of Logistics Management, and The Journal of Business Logistics and Management Decision. Phone: 602-965-6044, Page 24 The International Journal of Logistics Management