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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Links between Supply Chain Resilience and Homeland Security

Daniel Dumke — Mon, 23 May 2011 14:10:00 +0000

In the United States May 2008 was declared to be “Resilience Month” with several congressional hearings on the topic of how to improve organizational resilience on a societal level.

Yossi Sheffi from the MIT is one of the leading researchers on supply chain resilience and he was part of the hearings as well.

In his statement Sheffi described his view on organizational resilience. The full text of the hearing can be downloaded here. I summarized the main points here.

Disruptions and their Causes

Resilience can be defined as the ability to bounce back from large scale disruptions. Those disruptions can be caused by:

Random events, containing natural causes. Where probabilities can be estimated and which can be insured.

Accidents, which are caused by operational errors and can be prevented by “near miss” analysis as done in the aviation, chemical and nuclear industries.

Negligence, which includes non-compliance with regulations, standards and shifting public opinion.

Intentional disruptions, are caused by a “smart adversary” and therefore harder to circumvent.

On a societal level large disruptions can have several effects that accompany the actual disruption, like (1) significant public fear, (2) governmental reactions that exaggerate the disruption, due to alleged public fear, (3) cascading effects of the disruption (e.g. car makers slow down of production due to the Japanese earth quake)

Dealing with Disruptions

The first step in dealing with disruptions is to avoid them where possible. Depending on the cause of the disruption this may be an option to proceed, for some e.g. natural disasters it is often not.

As the second step a disruption detection system has to be established, since most disruptions can be handled better when caught early.

The last step is to plan and prepare for the disruption. There a two categories to prepare for a disruption: redundancy and flexibility.

Redundancy, in an organization as spare capacity, inventory or know how, can be quite costly especially as it has to be available at all times (e.g. see this article on how the military prepares for disruptions).

Flexibility comes in different shapes. For example standardization and modularity can lead to higher flexibility. Furthermore, unlike redundancy, flexibility can also improve the competitive advantage of companies in times without a disruption. The most important factor in the authors view is the culture of flexibility, which has to incorporate continuous communications, distributed power, passion for work and the mission, deference to expertise in times of disruption and conditioning for disruptions.

Conclusion

To draw the line from the (supply chain / organizational) disruption to what the government can do Sheffi introduces the cultural aspects into the disruption mitigation. Cultural changes on a societal level happen several times every century (e.g. recent health or current green trends). So the government should encourage and accelerate these trends to improve resilience of the overall chain.

It is an interesting twist that Sheffi, does not say much about increasing safety by more regulation or reducing the effects of disruptions by more direct means.

He also does not explicitly talk about the trade-off between regulatory cost and security, it even seems that he deliberately refrains from suggesting specific measures which may lead to increased governmental involvement in supply chain and logistics matters.

Reference:

Sheffi, Y. (2008). Resilience: What it is and how to achieve it? Congress Hearing, 1-5

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