Evaluation of a Firm's Supply Chain Strategy

Daniel Dumke — Wed, 05 Oct 2011 12:10:00 +0000

Today’s paper is brand new and based on the dissertation works of Roberto Perez-Franco. It can be considered as a summary of the current state of the art in supply chain strategy and extends knowledge in the field of strategy evaluation. It can be downloaded for example from Yossi Sheffi’s homepage at the MIT.

Foundation

The authors founded the following findings on two action research project with Saflex and a health care company. Several dozen interviews were conducted on different levels within the companies.

For the further research the authors define the major terms used: supply chain strategy and the difference between the supply chain and the supply chain strategy:

For the purpose of this paper, the supply chain strategy of a firm is understood as the set of ideas behind the activities, decisions and choices of that firm‟s supply chain, which serve as logical bridge between the supply chain operations in the field and the business strategy.

The difference between a supply chain and a supply chain strategy is the difference between a set of physical entities and a set of ideas. So, for example, when AMR Research publishes its “Supply Chain Top 25” list, what they are ranking are supply chains, not supply chain strategies.

Functional Strategy Map (FSM)

The authors introduce a Functional Strategy Map which “is a conceptual representation of the supply chain strategy as a bridge between operations and business strategy”. Three layers are aggregated in the FSM: strategic, functional and operational (figure 1).

Figure 1: Elements of a Functional Strategy Map (Perez-Franco et al., 2011)

A company’s supply chain is then evaluated based on the this concept using the criteria mentioned below.

A example of the FSM might look like that from Saflex in figure 2.

Figure 2: Example of a Functional Strategy Map (Perez-Franco et al., 2011; click to enlarge)

Evaluation criteria

The evaluation criteria were agreed upon before the first action research, but were adapted due to the new findings from the first and second action research.

The final suggested criteria are:

“Support: activities should support the goals of the supply chain strategy”

“Consistency: components of the supply chain strategy should be compatible”

“Coverage: the supply chain strategy should address all important areas”

“Sufficiency: the goals should be fully satisfied by the supply chain strategy”

Figure 3 illustrates the criteria.

Figure 3: Evaluation Criteria (Perez-Franco et al., 2011)

(1) Functional support: the functional themes are expected to support the strategic themes. (3) Strategic consistency: the strategic themes are expected to be compatible among themselves. (7) Functional coverage: the functional themes are expected to address all the areas of interest to the functions. (10) Functional sufficiency: The functional themes should be satisfied by the operational themes.

The authors also defined methods to evaluate these criteria within a company. I highlight the results of the consistency check here and refer you to the full paper if you are interested in more about the methods used here.

Figure 4: Incompatibility Matrix for the Functional Layer (Perez-Franco et al., 2011; click to enlarge)

Figure 4 shows the incompatibility matrix for the second company. Each axis contains the functional goals of the company and the percentages indicate the incompatibility between the ideas as given by the interviewees (lower means more compatible).

Thus this graph gives an good overview of strategic incompatibilities and clashes.

Conclusion

Thats already it. Of course the other criteria have to be evaluated as well and the authors have several of their questionnaires in the appendix.

The topic indeed is cutting edge, since there is not yet any literature on supply chain strategy evaluation.

Maybe the authors also already gave the reason for this lack of literature: Several studies already found that only less than 50% of the companies actually have a supply chain strategy.

But using this concept and these methods is a great way to make the supply chain strategy explicit and documented and evaluate it in the process as well!

Reference:

Perez-Franco, R., Singh, M., & Sheffi, Y. (2011). An approach to evaluate a firm’s supply chain strategy as a conceptual system International Journal of Production Economics

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evaluation

strategy

supply chain

framework

Simulation of Supply Chain Disruptions

Daniel Dumke — Wed, 22 Sep 2010 13:06:00 +0000

Still too many cooperations do not analyze their supply networks using consistent and scientifically proven methods. Some already do. One case of a company (ABC) is described below.

Goals and Methods

ABC company wanted to know more about their exposure to supply chain disruptions originating from their own plants but also the connected transportation links, suppliers and customers. Specifically, the goals were:

Assess the current level of supply chain disruption risk in the system
Test different mitigation strategies
Provide a tool that can be used in the case of a disruption to validate recovery steps before putting them into action
Identify redundancy in the system that can be removed without affecting the risk level

The authors therefore designed a supply chain model for two major products (one high, one low volume product) using discrete event simulation in Arena, one of the most often used simulation environments. To obtain distributions for the resulting performance measures the authors take advantage of Monte Carlo simulation using an excel tool called @Risk.

Simulation

The demand and risk patterns were evaluated using available data and expert interviews. In the second step mathematical distribution functions were adjusted to fit the empirical observations / forecast to input those into the model.

The company was very concerned with the effects of the disruptions on their customer service, so the Fill Rate was chosen as the relevant performance measure.

Results

The model was analyzed in two ways: First in an steady state analysis the current risk levels in the model were analyzed. In a second step the model was adjusted, by implementing one of the following strategies: implementation of inventory control and improvement of sourcing.

Even though only one simple measure was used, the ABC company was able to gain valuable insights into their supply chain.

Status Quo: All runs of the risk model experienced at least one week where 0% of the incoming orders were satisfied for the available inventory levels (two to six weeks)
Mitigation Strategies: The output clearly showed that reducing response times or increasing capacity of back-up methods were able to reduce the impact of a disruption and speed recovery.
ABC realized that they lack a database with historic distribution information for disruptions
There were no formal strategic-level mitigation procedures
Risk exposure is very dependent on the current state of the models parameters (eg. if a disruption occurs in a low inventory state, recovery lasts much longer)

The most important result is that the process of implementing such a simulation model can help the company think about supply chain disruptions more intensively and such a project can be used as a starting point for systematically documenting the risks and contingency plans in case of a disruption.

Reference:

Schmitt, Amanda J., & Singh Mahender (2009). Quantifying Supply Chain Disruption Risk Using Monte Carlo and Discrete-Event Simulation Proceedings of the 2009 Winter Simulation Conference, 1237-1248

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