Industrial Management & Data Systems

Emerald Article: Supply chain management in theory and practice: a

passing fad or a fundamental change?
Charu Chandra, Sameer Kumar

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To cite this document: Charu Chandra, Sameer Kumar, (2000),"Supply chain management in theory and practice: a passing fad or a
fundamental change?", Industrial Management & Data Systems, Vol. 100 Iss: 3 pp. 100 - 114
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Supply chain management in theory and practice:
a passing fad or a fundamental change?

Charu Chandra
University of Michigan, Dearborn, Michigan, USA
Sameer Kumar
University of St Thomas, St Paul, Minnesota, USA

Keywords analysis of this perspective is then described.

Supply chain, Introduction Following this, examples of strategies
Supply-chain management,
Integration, Competitiveness During the past few years, supply chain employed for solving supply chain problems,
excellence, optimization, and integration which lead to the framework, are described.
Abstract have become the focus and goal of many Finally, implications of this research on
Supply chain management is a organizations worldwide. This is because
major issue in many industries as
supply chain management issues are noted.
progressive firms are focusing on revenue
firms realize the importance of
creating an integrated relationship growth instead of merely striving to meet
with their suppliers and custo- annual cost reduction targets. Strengthening
mers. Managing the supply chain management of the supply chain is perceived
A historical perspective on the
has become a way of improving by many firms as enhancing customer
supply chain
competitiveness by reducing un- satisfaction and enabling profitable growth In order to understand the significance of
certainty and enhancing customer
(AMR, 1997). changes taking place in supply chain
service. This paper analyzes var-
ious issues important to supply Depending on why and how the supply initiatives, it would be prudent to review
chain management and provides chain concept has been applied to problem historical aspects of production and
broader awareness of supply chain solving, it has come to signify independent operations management activities (Bruce,
principles and concepts. The role evaluation and/or implementation of one or 1997; Poirier and Reiter, 1996).
of planning and coordination in
complex integrated systems and
more of the following characteristics: During the period from 1960 to 1975,
information technology to syn- 1 an arrangement of suppliers of products corporations had vertical organization
chronize the supply chain is de- and services; structures and optimization of activities was
scribed in a framework that 2 a network for efficient management of focused on functions. Relationships with
creates the appropriate structure
and installs proper controls in
demand and flow of products and services; vendors were win-lose interactions, and
the enterprise and other 3 a philosophy of conducting business; many times adversarial. Manufacturing
constituents in the chain. 4 a strategy to gain competitive advantage systems were focused on materials
through co-ordination and requirements planning (MRP).
synchronization of actions of its members. In the timeframe from 1975 to 1990,
corporations were still vertically aligned but
This is primarily due to lack of awareness of
several were involved in process mapping
techniques available for implementing
structural components of the supply chain and analysis to evaluate their operations.
(such as represented by characteristics 1, 2, There was realization by organizations of
and 3 above) with its functional components the benefit of integration of functions such
(such as represented by characteristic 4 as product design and manufacturing.
above). Various quality initiatives, such as the total
This paper integrates the basic tenets of quality management (TQM) philosophies of
supply chain generic structures with Deming, Juran, and Crosby, and ISO
common attributes of functional strategies, Standards for quality measurement were
such as reduction in inventory, lead-time, initiated by many organizations. The
and safety stock. This is the fundamental Malcolm Baldrige award and Shingo Prize
change proposed in this framework to for recognizing excellence in these and
application of the concept of supply chain other quality initiatives were initiated.
for problem solving. A historical perspective Manufacturing systems were focused on
on the supply chain traces the emergence of MRPII.
this enterprise integration concept. Supply Starting in 1990, corporations all over the
Industrial Management & chain management philosophy derived from world have been experiencing increasing
Data Systems national and international competition.
100/3 [2000] 100–113 The current issue and full text archive of this journal is available at Strategic alliances among organizations have
Ⓒ MCB University Press http:llwww.emerald-library.com been growing. Organization structures are
[ISSN 0263-5577]
starting to align with processes.

[ 100
]
Manufacturing systems
in organizations

[ 10
 tactical strategies essential to delivery of
Charu Chandra and have been enhanced with information
Sameer Kumar technology tools such as enterprise
Supply chain management in
theory and practice: resource planning, distribution
a passing fad or a requirements planning, electronic
fundamental change? commerce, product data management,
Industrial Management & collaborative engineering, etc. (Aberdeen,
Data Systems
100/3 [2000] 100–113 1996). Design for disassembly, synchronous
manufacturing, and agile manufacturing are
some of the new paradigms in
manufacturing. There has been a growing
appreciation in many firms of total cost
focus for a product from its source to
consumption, as opposed to extracting lowest
price from immediate vendor(s) (Turbide,
1997). There has also been an increased
reliance on purchased materials and outside
processing with a simultaneous reduction in
the number of suppliers and greater sharing
of information between vendors and
customers. A noticeable shift has taken place
in the marketplace from mass production to
customized products. This has resulted in the
emphasis on greater organizational and
process flexibility and co-ordination of
processes across many sites. More and more
organizations are promoting employee
empowerment and the need for rule-based,
real-time decision support systems to attain
organizational and process flexibility, as
well as to respond to competitive pressure
to introduce new products more quickly,
cheaply and of improved quality.
The underlying philosophy of managing
supply chains has evolved to respond to these
changing business trends. The supply chain
management phenomenon has received the
attention of researchers and practitioners in
various topics. In the earlier years, the
emphasis was on materials planning,
utilizing materials requirements planning
techniques, inventory logistics management
with one warehouse multi-retailer
distribution system, and push and pull
operation techniques for production systems.
In the last few years, however, there has been
a renewed interest in designing and
implementing integrated systems, such as
enterprise resource planning, multi-echelon
inventory, and synchronous-flow
manufacturing respectively. A number of
factors have contributed to this shift. First,
there has been a realization that better
planning and management of complex
interrelated systems, such as materials
planning, inventory management, capacity
planning, logistics, and production systems,
will lead to overall improvement in
enterprise productivity. Second, advances in
information and communication
technologies complemented by sophisticated
decision support systems enable designing,
implementing and controlling strategic and

[ 102
]
integrated systems.
The availability of
such systems has the Supply chain
potential of management philosophy
fundamentally To balance customers' demands with the
influencing enterprise need for profitable growth, many firms
integration issues. have moved aggressively to improve supply
The motivation in chain management (AMR, 1995; Andersen et
pursuing this research al., 1997; Copacino, 1997; Poirier and Reiter,
on the supply chain is 1996). Their channel integration efforts
to propose a framework have focused on the following main issues:
that enables such ●
organizational structures and
issues to be dealt with associated relationships;
effectively. ●
supply chain coordination;
The approach in this ●
inter- and intra-
research, of utilizing enterprise
supply chain communication;
philosophy for ●
sourcing;
enterprise integration, ●
manufacturing orientation;
proposes domain ●
inventory and cost management.
independent problem
We describe each of these issues
solving and modeling,
and domain dependent next.
analysis and
implementation. The 1. Flexible organizations
purpose of the An important attribute for any supplier is
approach is to agility realized through its flexible
ascertain characteristics organization. A flexible organization of a
of the problem firm supports plant and distribution
independent of the networks by achieving operational
specific problem efficiency through quick line changeovers,
environment. as well as savings realized as a result of
Consequently, the avoiding back hauling and enhanced
approach delivers product realization.
solution(s) or the
solution method that
are intrinsic to the
problem and not its
environment. Analysis
methods help to
understand
characteristics of the
solution methodology
as well as providing
specific guarantees of
effectiveness.
Invariably, insights
gained from these
analyses can be used
to develop effective
problem-solving tools
and techniques for
complex enterprise
integration problems.
The objective in this
paper is to make a
case for supply chain
management
philosophy utilizing
such an approach.
The next section
provides practical
examples of supply
chain management
philosophies.
[ 10
 constituents. A successful customer vendor
Charu Chandra and As firms move toward supply chain
Sameer Kumar excellence, they are concerned with both
Supply chain management in
theory and practice: internal and external efficiencies. Internal
a passing fad or a efficiency, the key driving force to supply
fundamental change? chain operational efficiency, is agility, rather
Industrial Management & than economies of size. Investments in
Data Systems
100/3 [2000] 100–113 plant and distribution equipment are
important to maintain an agile organization
in a supply chain. Externally, supplier
efficiency is extremely critical to supply
chain performance.

2. Organizational relationships
Strategic alliances and partnerships are
crucial to the success of a supply chain.
Firms are encouraged to focus their
attention on the entire supply chain and
reduce the number of suppliers that they
have to deal with. Many firms have
developed preferred supplier programs as
well as core transport carriers to ensure
that a quality product is received where and
when it is needed.
A successful strategic alliance or a
partnership must be based on extreme trust,
loyalty, positive sum game (a win-win
relationship), cross-functional teams,
sharing common goals and cooperation that
includes willingness to assist, and positive
negotiations based on fairness.

3. Total supply chain coordination

Each firm may have multiple supply chains
and each of these may have potentially
different business needs. It is important to
employ cross-channel co-ordination when
sharing some of the common resources
among different supply chains. This co-
ordination allows supply chains in a
company to integrate with each other
(Francett, 1996; Fraser, 1997; Gould, 1998;
Harlend and Scharlacken, 1997).
Creating supply chain value is important
for successful co-ordination. The most
important single factor in creating supply
chain value is the ability to predict or
forecast demand. The goal for total
coordination is to be demand driven and not
lot size driven. This implies that suppliers
should supply products according to
demand and not lot quotas.
In the past, forecasting was done primarily
utilizing historical data. Firms are moving
away from this method and beginning to use
point of sale data, which tell them exactly
how much was purchased during a certain
time frame (Costanza, 1998; Davis, 1993;
Fisher et al., 1994; Fraser, 1998).

4. Improved communications
Both uncertainty and inventory levels are
lowered through improved communications
‘‘within'' and ‘‘between'' supply chain

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]
relationship is built by manufacturing strategy and aggressive
exchanging profit and loss management enabled Dell
information pertaining Computers to minimize its working capital
to product requirements, increase cash flow, and
development for new realize a negative five days cash-to-cash
products, product conversion cycle.
improvements, costs,
demand schedules 7. Inventory management
(including point of sale In the past, carrying inventory in stock was
data), and materials a normal business practice to guard
and supplies needed against risk of unfulfilled demand. Today,
to meet production many firms find that holding inventory is
schedules. costly and so they try to push inventory on
It is crucial to relay to someone else in the supply chain. It is a
information about end- challenge for constituents to ascertain
use consumers to where inventory should be held in the
manufacturers back supply chain. Some firms are demanding
through the chain. This that the manufacturer deliver inventory to
results in better private customer warehouses more
product information frequently and in smaller lots.
about customers' Some important supply chain inventory
needs and improved issues are: shorter delivery times, just in
production operations. time (JIT), point of sale data, vendor-
managed inventory, and consignment
5. Outsourcing non- inventory (Mayer, 1996). Shorter delivery
times, JIT, and point of sale data are
core competencies
complementary to one another. For
Outsourcing will
continue to be example, in order to utilize a JIT system,
important for having a shorter
cost-effective business
(Poirier and Reiter,
1996). Such
arrangements place
responsibility for
logistics or production
functions in the supply
chain in the hands of
the constituent most
capable of performing
these successfully.
Many firms are
currently outsourcing
the distribution
process. They are able
to track all deliveries
through a third party
provider.

6. Build to order
manufacturing
strategy The
economics of build-to-
order (BTO)
manufacturing strategy
transcends industry
segments. In the March
1998 issue of Fortune
magazine, it was
reported that Ford is
migrating to a build-to-
order strategy. Their
goal was to meet a
majority of demand for
cars using this
manufacturing strategy
by the end of 1999. In
1996, the delivery
period for a Mustang
car from the plant to a
dealer was 50 days.
Currently, it is only 15
days. A BTO

[ 10
 delivery times are needed and point-of-sale echelon supply chain. More commonly
Charu Chandra and
Sameer Kumar data are required to know which products known as, ‘‘The Production Game'', the
Supply chain management in result of this
theory and practice: are to be replenished quickly. Information
a passing fad or a sharing is critical in resolving these issues.
fundamental change? Vendor-managed and consignment inventory
Industrial Management & are becoming important management
Data Systems
100/3 [2000] 100–113 strategies designed to locate inventory in
the supply chain efficiently.

8. Cost control
Supply chain management must be able
to quantify a bottom line impact. There is
a tendency to accept short-term profits as
opposed to long-term investments for
sustained profits and growth.
It is typical in many firms that the
‘‘operation'' function desires improved
product forecasts and longer lead times. On
the other hand, the ‘‘sales and marketing''
function desires more inventories to
alleviate the potential for stock-out. These
demands lead to enhanced production
capacity, thus creating excess inventory and
consequently higher production costs. Both
functions blame this phenomenon on the
current process. These activities pull efforts
away from doing the basics well, which
include sharing information among
functions and concentrating on demand
management.
Issues 1 to 4 have potential impact on the
enterprise at the macro level, while 5 to 8
can affect it at the micro level. Channel
integration for an enterprise is best
achieved when macro and micro level
issues are resolved in a coordinated
manner. It requires integration of generic
strategies at the macro level with functional
strategies at the micro level. This
phenomenon is described next with the help
of the ‘‘acceleration principle'', a strategy
often utilized for solving supply chain
problems.

Strategies for solving supply chain

problems
The acceleration principle: lead
time/ safety stock and inventory
reduction syndromes
Numerous articles in recent years have
described the desirability of supply chain
strategies and specific steps taken to
implement them.
One path-breaking example is the use of
the ‘‘acceleration principle'' proposed by Jay
Forresters at the Massachusetts Institute of
Technology. It is best explained by a
management training exercise developed in
the 1950s, called ‘‘The Beer Game''
(Sherman, 1997). It is designed to simulate
product and information flows through multi-

[ 106
]
simulation is what has face today in managing these flows.
been called the Functional silos within each company
‘‘Forrester's effect'', or affect the flow of information and materials,
the ‘‘acceleration just as multi-firms (echelons) do in the
principle''. According to supply chain. Batch processing of
this principle, a 10 information generates effects of the
percent change in the ‘‘acceleration principle'' within the
rate of sale at the retail organization. Distorted demand data and
level can result in up to delayed information become commonplace,
a 40 percent change in eliciting a reaction typical of purchasing
demand for the personnel and production planners. This
manufacturer. It is a reaction is referred to as the ‘‘lead-time (or
result of slow reaction safety stock) syndrome'' (Plossl, 1991) and
time and batch is illustrated in Figure 1. The effect
processing time continues to escalate, leading up to the
between echelons in undesired capacity increase based on this
the supply chain. Panic condition. This capacity increase, however,
starts an over-reaction is not without a corresponding cost
to the current state of increase.
inventory, increasing Eventually, the overload is relieved since
the amplitude of the increased capacity floods the supply chain,
effect. The effect causing the second effect from distorted
becomes cyclical with demand data. This effect, labeled
periods of high ‘‘inventory reduction syndrome'', is
backorders switching to illustrated in Figure
periods of high 2. It is the result of the organization
inventory. Players addressing the excess inventory created by
blame each other for the first syndrome. Without process
lack of success during changes, these two syndromes feed each
the game, similar to the other in a continuous loop.
way departments do
within a firm. Yet, it is
not the performance of
the individual, but the
structure of the system
that is to blame for
failures. The effect can
be minimized if retail
sales information is
shared throughout the
supply line. It can
potentially reduce the
reaction time to
respond to fluctuation
in demand. First,
however, it is
appropriate to turn the
focus on a business
entity within the supply
chain. This is where an
individual entity has the
most leverage and can
exercise control.
However, each entity
must set its own house
in order before all
constituent entities can
collectively work on
supply chain
improvements.
Firms deal with two
types of flows –
material, and
information (Plossl,
1991). The production
game is exposing only
the top layer of
problems that
manufacturing firms
[ 10
Charu Chandra and Ultimately, another silo is established in
Sameer Kumar the organization. It is specifically chartered
Supply chain management in
theory and practice: to run promotions in the hope of increasing
a passing fad or a market share, while targeting reduction in
fundamental change? excess inventories. This action is also
Industrial Management & erroneous. The firm has now combined
Data Systems
100/3 [2000] 100–113 perpetual reductions in sales prices from the
‘‘inventory reduction syndrome'' with
increasing production costs from the ‘‘lead-
time syndrome''.
In a growing market, the combination of
these two effects is consumed by the growth
in demand. Firms can survive and even
flourish during this growth period in spite of
the oscillating cycle that focuses on
reducing inventory during one time period,
while expediting product delivery regardless
of cost during the next period. When the
market experiences a plateau or a decline at
this
Figure 1
Lead time/safety stock syndrome
Figure 2
Inventory reduction syndrome
[ 108
]
time, the organization can spiral itself right
out of existence.
The proposed framework represents the
impact of these syndromes in the supply
chain as through-put, cycle time, inventory
at various stages, and quality of decision
making in conjunction with generic
structural elements such as flexibility, co-
ordination, synchronization, and
standardization, to develop a waste-
sensitized strategy mix. The next section
provides examples of successful supply chain
management strategies.
Implementing effective supply
chain management strategies
The primary purpose in establishing supply
chains is to minimize the flow of raw
materials and finished products at every
point in the pipeline in order to enhance
productivity and cost savings (Cohen, 1996;
Cooper and Ellram, 1993). Successful supply
chain ventures manage the following critical
elements for parts (individual business unit,
or a division/function), and/or the whole
(the entire supply chain).
1. Manage inventory investment in the
chain
Each constituent of the supply chain desires
to hold no more than its fair share of
inventory. For instance, the distributor
desires fewer inventories and would like to
see inventory held by the manufacturer. As a
result, the concept of vendor-managed
inventory has become a trend in inventory
management. This system allows the
inventory to be pushed back to the vendor
and as a result lowers the investment and
risk for the other chain members (Donovan,
1997; Mayer, 1996).
As product life cycles are shortening,
lower inventory investment in the chain has
become important. Cycle times are being
reduced as a result of the quick response
inventory system. The quick response system
improves customer service because the
customer gets the right amount of product,
when and where it is needed (May, 1994).
Quick response also serves to increase
manufacturing inventory turns.
2. Establish supplier relationships
It is important to establish strategic
partnerships with suppliers for a successful
supply chain. Corporations have started to
limit the number of suppliers they do
business with by implementing vendor
review programs. These programs strive to
find suppliers with operational excellence so
the customer can determine which supplier
is serving it better. The ability to have a
 closer customer/supplier relationship is very size of these retailers allows them the power
Charu Chandra and
Sameer Kumar important because these suppliers are easier to
Supply chain management in to work with.
theory and practice:
a passing fad or a With the evolution toward a sole supplier
fundamental change? relationship, firms need full disclosure of
Industrial Management & information such as financial performance,
Data Systems
100/3 [2000] 100–113 gain sharing strategies, and plans for jointly
designed work. They may establish a
comparable culture and also implement
compatible forecasting and information
technology systems. This is because their
suppliers must be able to link electronically
into the customer's system to obtain
shipping details, production schedules and
any other needed information (Copacino,
1996; Coyle et al., 1996; Keller, 1995).

3. Increase customer responsiveness

To remain competitive, firms focus on
improved supply chain efforts to enhance
customer service through increased
frequency of reliable product deliveries.
Increasing demands on customer service
levels is driving partnerships between
customers and suppliers. The ability to
serve their customers with higher levels of
quality service, including speedier delivery
of products, is vital to partnering efforts.
Having a successful relationship with a
supplier results in trust and the ability to be
customer driven, customer intimate and
customer focused (Willis, 1995).

4. Build a competitive advantage for the

channel
Achieving and maintaining competitive
advantage in an industry is not an easy
undertaking for a firm. Many competitive
pressures force a firm to remain efficient.
Supply chain management is seen by some
as a competitive advantage for firms that
employ the resources to implement the
process. It also serves to increase the clout in
the channel because these firms are
recognized as leading edge and are treated
with respect.
Attaining competitive advantage in the
channel comes with top management support
for decreased costs, waste management, and
enhanced profits. Many firms want to push
costs back to their supplier and take labor
costs out of the system. These cost
reducing tactics tend to increase the
competitive efficiency of the entire supply
chain.
Firms have become more market channel
focused. They are observing how the entire
channel's activities affect the system
operation. In recent times, the channel power
has shifted to the retailer. Retailer channel
power in the distribution channel is driven
by the shift to some large retail firms, such
as Wal-Mart, Kmart, and Target. The large

[ 10
dictate exactly how agree that firms may not be able to rely
they want their either on a price leadership role or on a
suppliers to do differentiation strategy alone to guarantee
business with them. sustained market strength. To sustain
The use of point of long-term growth, however, combinations
sales data and of both strategies are typically needed to
increased efficiency of operate effectively within constraints
distribution also have imposed by the environment.
been instrumental in Such is also the case for a supply chain of
improving channel products and services offered by a firm.
power and competitive However, since a number of autonomous
advantage (Magretta, business entities belong to the supply
1998; Robinson, 1998; chain network, it becomes imperative to
Ross, 1996). develop a common mission, goals, and
objectives for the group as a whole, while
5. Introduce supply pursuing independent policies at individual
chain management members' level. This scenario offers
solutions and opportunities for design, modeling, and
enabling implementation of supply chain networks
information for maximum effectiveness, efficiency, and
technology productivity in a dynamic environment.
Information is vital to As noted earlier, a supply chain network,
effectively operating depicted in Figure 3, can be a complex web
the supply chain. The of systems, sub-systems, operations,
communication activities, and their relationships to one
capability of an another, belonging to its various members,
enterprise is enhanced namely, suppliers, carriers, manufacturing
by an information plants,
technology system.
However, information
system compatibility
among trading partners
can limit the capability
to exchange
information. An
improved information
technology system that
is user friendly, where
partners in the channel
have access to common
databases that are
updated in real-time, is
needed.
These examples
plus the research
summarized in the
preceding sections
provide the basis for
a new framework for
supply chain
management.

Supply chain
management
−a
framework for
analysis
This section describes
a framework that
assists in managing
supply chain
problems. It combines
basic tenets of linking
generic (structural)
strategies with
functional
(prescriptive)
strategies.
Many strategists

[ 110
]
Charu Chandra and Figure 3
Sameer Kumar A supply chain network
Supply chain management in
theory and practice:
a passing fad or a fundamental
change?
Industrial Management &
Data Systems
100/3 [2000] 100–113

distribution centers, retailers, and

components, such as demand and
consumers (Swaminathan et al., 1996).
production functions of individual
The design, modeling and implementation
members of the supply chain enterprise.
of such a system, therefore, can be difficult,
POMS are concerned with the production
unless various parts of it are cohesively tied
of goods and services. In conjunction
to the whole. The motivation in proposing a
with other functional systems, these also
framework to manage a supply chain
deal with the management of resources
system is to facilitate integration of its
(inputs) and the distribution of finished
various components through a common set
goods and services to customers (outputs).
of principles, strategies, policies, and
Operations signify the production of goods
performance metrics throughout its
and services, the set of value-added
developmental life cycle.
activities that transform inputs into
As a special class of network, a supply
outputs.
chain offers unique ways to amalgamate the
The supply chain as a special class of
structural component with functional
network offers unique and creative ways
components of the enterprise. An integrated
of planning and management of complex
framework to manage a supply chain
interrelated systems. There is realization
network is proposed. Its building blocks are:
among its members that designing and
availability, supply and demand, for
implementing various sub-systems of
inventory; and a planning unit that
POMS, such as materials planning,
coordinates marketing and production of
inventory management, capacity
inventory. Relationships between these are
planning, logistics, and production
expressed in the traditional ‘‘inventory
systems utilizing supply chain
balance'' equation, as follows:
philosophy, will lead to overall
Inventory level + Supply level
improvement in enterprise productivity
= Demand level
(Lee and Billington, 1993).
These building blocks and their ●
Integrated production planning and
relationships can be extended and control (IPPC) systems assume the role of
generalized at any level of the coordinator of demand and production
supply chain hierarchy. functions. IPPC is a combination of
This architecture is described briefly philosophies, concepts, and tools and
below in relation to the above techniques, to manage deviations in
building blocks: expectations of the demand and supply
●
Production operations management functions of a productive system. It is an
systems (POMS) manage functional integrated material-flow based

[ 11
Charu Chandra and information system, whose planning and
Sameer Kumar control are based on feedback loop of
Supply chain management in
theory and practice: control theory. Main approaches to IPPC
a passing fad or a are push, pull, and synchronous flow
fundamental change? production systems.
Industrial Management & Advances in information and
Data Systems
100/3 [2000] 100–113 communication technologies
complemented by sophisticated decision
support systems enable designing,
implementing and controlling strategies
essential to delivery of integrated systems,
such as supply chain systems.
An example of a manufacturing supply
chain network (Tzafestas and Kapsiotis,
1994), depicted in Figure 4, captures the
essence of the proposed framework. It has
been derived from the general architecture
of a supply chain network depicted in
Figure 3.
This supply chain is made up of a
manufacturer and a two-level hierarchy of
suppliers. Each sub-system in the supply
chain network incurs costs that are to be
monitored and controlled. At each level in
the supply chain, delay due to procurement
activity is incurred, which has the potential
of imposing waste, and thus incurring
additional costs in the system. This closed
loop form of a supply chain system
mandates tight coupling among its
components. This rationale is adapted for
the proposed framework.
The supply chain framework elements are
categorized as follows:
●
goals;
●
objectives;
●
modeling principles;
●
developing coordinated strategies;
●
implementation.
Each of these elements is discussed in the
context of a manufacturing supply chain, an
example of which is depicted in Figure 4.
Figure 4
A manufacturing supply chain network
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]
1. Goals
Supply chain goals are mutually agreed upon
between members in a spirit of cooperation.
Members negotiate and compromise with
each other, in order to arrive at acceptable
goals. Goals for the supply chain are set at
two levels. Members synergize their
activities and resources toward
accomplishing common goals for the supply
chain as a group that aim to benefit all, and
not just a few among the group. In addition,
members may pursue individual goals that
reflect their organizational values and
expectations. However, the two sets of goals
must be coordinated in order to be effective
performance measures for the supply chain.
This may require tuning individual goals of
members such that common supply chain
goals can be met.
A common goal for a manufacturing
supply chain may be to maintain an industry
benchmark of z percent order-fill-rate within
t hours of receipt of customer orders. On the
basis of this common goal, individual
members may set their own goals as
achieving k inventory turns, realizing an s
percent shipment-fill-rate of within t hours of
order, etc.
2. Objectives
Supply chain objectives directly support its
stated goals. As such, they are derived from
published goals. For example, a common
manufacturing supply chain goal can be to
enhance revenue through eliminating or
alleviating bottleneck operations in the
system. Supply chain objectives that directly
support this goal can be identified as:
1 increase through-put;
2 reduce cycle time;
Charu Chandra and 3 reduce inventory at different stages (raw
Sameer Kumar materials – work-in-process – finished
Supply chain management in
theory and practice: goods).
a passing fad or a
fundamental change? As can be seen, these objectives are
complementary to each other. For example, a
Industrial Management &
Data Systems primary objective of increased through-put
100/3 [2000] 100–113 in the supply chain must be supported by a
secondary objective to reduce cycle time. A
reduction in processing time and set-up time
will allow smaller batches to be processed
faster, thereby lessening congestion in the
system and registering shorter cycle time.
This will also create increased through-put,
and consequently, a higher revenue
stream in the supply chain. As a result of
this improvement in the supply chain, the
tertiary objective of reduced inventory at
different stages, which supports both the
primary and secondary objectives, can be
realized, since inventory at different stages
will not have to wait for availability of
operations for further processing.
Objectives can be set both at the group
level for the supply chain, and at member
level for individual members. However, the
two sets of objectives ought to be coordinated
in order to be effective performance
measures for the supply chain. This may
require tuning individual objectives of
members such that common supply chain
objectives can be met.
3. Modeling principles
A productive system such as a supply chain
generates a stream of waste, primarily due
to potential structural weaknesses in its
design. A manufacturing enterprise may
carry potential waste throughout its product
and/ or service life cycle.
Next, modeling principles (described
earlier in this section) that can be applied to
managing waste in the context of the
manufacturing supply chain example are
discussed. These principles are generic
enough so that the modeler may ascertain
characteristics of the problem independent of
the specific problem environment.
Consequently, the approach delivers
solution(s), or the solution method, that are
intrinsic to the problem and not its
environment.
In general, the principles described below
support goals and objectives identified
earlier in this section for the manufacturing
supply chain example. Overall, by applying
these principles, waste management models
that reduce variability in the supply chain
due to product and/or process
specifications, out-of-control processes,
inefficient logistics, and inefficiencies that
are inherently present in any system, can be
developed.
These principles are described below.
Principle No. 1. Reducing the influence of
lead time variability in the productive
system
The influence of lead time can be felt in the
supply chain at any and/or all stages of its
life cycle. The transformation of product
through various stages in its life cycle bring
out cycle time in its various manifestations,
such as set-up time, process time, queue
time, wait time, and idle time. One of the
primary challenges in modeling waste
management in the supply chain is to
reduce variability of these cycle time
elements. This is mainly accomplished by
designing coordination mechanisms
through sharing of information in the form of
demand schedules, capacity plans,
production schedules, etc.
For example:
●
set-up time can be alleviated by
ensuring constant demand in the
system;
●
process time variations can be
reduced and/or eliminated by
standardizing methods and
procedures;
●
queue time can be eliminated by
coordinating schedules between servers
so that elapsed time for service can be
minimized and server efficiency
improved; and
●
idle time can be eliminated or alleviated
by scheduling maintenance of productive
resources.
Principle No. 2. Reducing the influence
of inventory variability at different stages
and locations in the supply chain
Inventory variability poses a serious
challenge in the management of a supply
chain. This is primarily because the material
flow in a supply chain takes on many forms
through its life cycle and thus assumes
various inventory classifications. This
phenomenon is described with an example
drawn from the textile industry. A garment
sold to a consumer at retail has a material
flow from fiber, non-dyed fabric, dyed fabric,
apparel, and finally a finished garment.
Various types of inventories are created
throughout the above material
transformation. Fiber production is a
continuous manufacturing process, where
batches are introduced in order to achieve
economies of scale and/or production
efficiencies. However, batches of production
cause inventory (or cycle stock). Production
of textile fabric from fiber may impose
sequence dependencies between processes, or
create goods-in-transit for a multi-echelon
assembly line set-up. Decoupling stocks may
also be created, if, for example, an end
product of one process (unprocessed goods)
and a raw material for the next process
(fabric coloring) are warehoused to achieve
[ 11
production economies.
Material flow at the
next stage is in the
form of textile fabric

[ 114
]
Charu Chandra and components required to produce apparel.
Sameer Kumar Anticipation inventories may be created for
Supply chain management in
theory and practice: apparels with seasonal demand. Work-in-
a passing fad or a process inventories may be created for
fundamental change? apparels requiring assembly of various
Industrial Management & components. Finally, consumers' demand
Data Systems
100/3 [2000] 100–113
patterns, product characteristics, and
customer service levels dictate maintaining
safety stocks of apparel to avoid stock-outs.
Management of inventories at various
stages will have to be proposed as part of
an overall IPPC philosophy that integrates
inventory policies with appropriate
procurement policies and scheduling
heuristics. Table I offers details on this.
Principle No. 3. Reducing the influence of
batching effects variability in the
productive system
This principle prescribes that the
relationship between lot size and lead-time
should be closely managed in a
manufacturing supply chain. Two types of
effects that emerge from this relationship
are batching effect, and saturation effect
(Karmarkar et al., 1985; Graves et al., 1993;
Sipper, and Bulfin, 1997). These are
described below.
Batc ing e((ect. The rationale behind this
effect is that an increase in lot size should
also increase lead-time. For example, a batch
of one unit can immediately move to the
next operation as soon as its processing is
complete. However, a batch of five units does
not move until all five units are completed.
That is, the first unit waits until the other
four units are completed before it moves to
the next operation. A doubling of the batch
size to ten units requires the first unit to wait
for the processing of remaining nine units.
The bottom line is that large batches will
cause longer delays of parts waiting for the
rest of the batch to be completed.
Saturation e((ect. The rationale behind this
effect is that saturation effect works
conversely to the batching effect. That is,
when lot sizes decrease, and set-up is not
reduced, lead-time will eventually increase.
Table I
Classification of production-planning-control philosophies for textile sectors
Textile sector Primaryfocus IPPC philosophy
Retailer High customer service by Economic-order-quantity and
maintaining reduced levels of reorder point
inventories
Apparel Effective coordination of material Material requirement planning;
component and labor needs quick response
Textile Minimization of setup times and Just-in-time; economic-order-
inventories; high capacity
quantity
utilization
Fiber High utilization of installed Multi-stage economic-order-
capacity quantity and reorder point
The reason is that, if demand stays the same,
as lot sizes are reduced there will be more
lots in the shop. This results in more time
spent on set-ups and less time available for
processing. As a result, demand becomes a
relatively larger proportion of available
capacity and congestion increases.
Since the effects of the two phenomena are
opposite, the aggregate behavior of lead-time
as a function of lot size assumes a convex or
a U-shape.
In the final analysis, however, by making
the transfer batch smaller than the
production batch, production lead-time can
be substantially reduced.
Principle No. 4. Reducing the influence of
variability due to bottleneck operations in
the supply chain
The rationale behind this principle is that,
rather than balancing capacities, the flow of
product through the system should be
balanced. That is, the modeling of waste
management should be designed to control
through-put and work-in-process inventory
simultaneously. This will require converting
a bottleneck activity to non-bottleneck
activity in the supply chain. We can achieve
this by creating buffers due to time,
inventory, lead time, etc. so as to allow the
bottleneck activity to be synchronized with
the succeeding non-bottleneck activity. An
approach that enables this to be done is the
drum-buffer-rope (DBR) approach based on
the theory of constraint (Cohen, 1988). A
bottleneck operation becomes the control
point whose production rate controls the
pace of the system. This bottleneck beats
the drum that enables execution of policies
that create a buffer before the control point
so that it gets a leeway to synchronize its
actions with downstream operations in the
supply chain. A rope in the form of feedback
of information from the bottleneck operation
to upstream operations enables the pipeline
to maintain its through-put. Implementing
the DBR approach is a key element of
synchronous manufacturing in a supply
chain.
4. Developing coordinated strategies
The implementation of waste
management models for a manufacturing
supply chain
mandates cohesive strategies that support
goals and objectives of the enterprise.
There is a need for models that describe
and implement controls of various
subsystems for controlling the total supply
chain system. An outline of a model that
focuses on the dynamic structure of the
supply chain and effective coordination of
its processes is described. Such a model
enables developing interaction between
[ 11
production and
marketing policies between the supply

[ 116
]
Charu Chandra and process of raw materials and the production
Sameer Kumar of finished products.
Supply chain management in
theory and practice: The element of coordination in developing
a passing fad or a effective strategies for a manufacturing
fundamental change? supply chain is built by incorporating
Industrial Management & planning and control function as the
Data Systems
100/3 [2000] 100–113 integration unit. For example, marketing
strategies for a supply chain emphasize
varying stocking policies to maintain
inventory effectiveness while ensuring
service levels under varying planning and
control scenarios. Figure 5 depicts various
strategic alternatives that can be evaluated
for implementation in a supply chain.
Production strategies for a supply chain
emphasize varying resource optimization
and batching policies to realize production
effectiveness, while ensuring lead times
under varying planning and control
scenarios. Figure 6 depicts various
strategic alternatives that can be evaluated
for implementation in a supply chain.
Developing interaction of marketing and
production strategies, however, offers
opportunities for modeling coordination and
synchronization in a supply chain. The
proposed framework emphasizes such an
approach. Some of the advantages of
pursuing coordinated strategies are
highlighted below:
1 Maintaining effective inventories
while realizing production
efficiencies.
2 Achieving integration through
synchronization and coordination of
various system components.
3 Potential of increase in supply chain
payoffs.
Figure 7 depicts a model that coordinates the
demand and supply functions of a
manufacturing supply chain.
The two sub-models that are designed
for separate execution represent
independent and autonomous members,
offering distinct product/service in the
Figure 5 supply chain. The
Marketing strategies for a supply chain
network
coordination of the end product (product/
service) of each of the two sub-models,
however, is effected with the help of a
common model that performs the planning
and control functions of the supply chain.
In this manner, common policies agreed to
between various members of the supply
chain are implemented. For example, it may
be possible to enforce common quotas for
capacities, mutually agreed to price and
cost structures, as well as production
schedules, etc.
5. Implementation
The implementation of the proposed
framework is illustrated with the help of
manufacturing supply chain examples from
the food and steel industry respectively.
Figures 8 and 9 depict these supply chains.
In the case of the food industry, common
objectives between members are to manage
lead-time and inventory at various stages in
the supply chain. Similarly, lead-time and
inventory are also managed within a
member. Coordination of activities of
various entities in the supply chain is
achieved through information sharing with
feed-forward and feed-back mechanism, in a
closed loop system form. For example, lead
time is negotiated and committed through a
bidding process, and plans at various
stages are shared through information
loops. Owing to the usually heavy
marketing focus of the food industry,
cooperation among functions is modeled to
incorporate every facet of the product life
cycle, from raw material source to the
consumer.
In the case of the steel industry, common
objectives between members are to manage
production batches, lot sizes, and process
and set-up times at various stages in the
supply chain. Lead-time and inventory are
managed within a member. Coordination of
activities of various entities in the supply
chain is achieved through information
sharing with feed-forward and feed-back
mechanism, in a
closed loop system form. For example, lead
[ 11
time is negotiated and committed through a
bidding process, and plans at various stages
are shared through information loops. Owing
to the usually heavy production focus of the
steel industry, cooperation among functions
is modeled to emphasize operations and the
associated logistics, from raw material
source to finished steel product.
Thus, while the focus of the two supply
chains is different, similarities in approaches
to design goals and objectives and model
various waste management principles should
enable the developing of generic solutions to
problem solving for these fairly diverse
industry environments. For example, the

[ 118
]
Charu Chandra and
Sameer Kumar Figure 6
Supply chain management in Production strategies in a supply chain network
theory and practice:
a passing fad or a
fundamental change?
Industrial Management &
Data Systems
100/3 [2000] 100–113

Figure 7
Coordinating strategies in a supply chain network

Figure 8
A food product supply chain network

[ 11
Charu Chandra and generic marketing and production strategies
Sameer Kumar described in the preceding sub-section can be
Supply chain management in
theory and practice: represented by defining variables for each
a passing fad or a of the performance metrics, and analyzing
fundamental change? various strategic alternatives through
Industrial Management & coordination of functional models in the
Data Systems
100/3 [2000] 100–113 product life-cycle.
Conclusions
The long-term success of a firm depends
on the success of its suppliers and level of
satisfaction of its customers. That is, the
entire supply chain must be successful.
Poorly performing supply chains are easy to
recognize and generally schedule product,
using forecasting, in a batch mode. These
supply chains push the product through to
the customer, have low overall reliability and
maintain high inventory levels to achieve
fulfillment rates. Overtime, expediting,
premium freight and inventory obsolescence
drive up product costs. A growing number of
firms are designing products and operating
in an extended multi-company enterprise.
They are minimizing non-value-added work
and reducing inventory levels across the
supply chain. These organizations are also
coordinating planning, and forecasting
operations in a multi-company context and
managing a multi-tier supplier environment.
Many firms are eliminating costs rather than
reallocating them. An example of this effort
is outsourcing of the materials management
function. They are implementing customer
pull across multiple boundaries and also
treating suppliers as partners rather than
adversaries. What is being experienced today
Figure 9
A steel product supply chain network
[ 120
]
is a fundamental change in global
business philosophy of increasing
partnering arrangements.
In order to manage these supply chain
arrangements for realizing overall
improvement in enterprise productivity, it
is necessary to improve the planning and
management of complex interrelated systems
such as materials planning, inventory
management, capacity planning, logistics,
and production systems. The availability of
information technologies has enabled the
delivery of integrated systems for decision
making. A framework has been proposed to
deliver integrated systems for supply chain
management. Since the proposed approach
offers generic solutions for problem solving,
it is now possible to address a variety of
problems across industries having similar
design and modeling characteristics.
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