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An empirical investigation into supply chain management

A perspective on partnerships
Robert E. Spekman
Darden Graduate School of Business, University of Virginia, Charlottesville, Virginia, USA

John W. Kamauff Jr
Ernst & Young Consulting, Baltimore, USA, and

Niklas Myhr
Darden Graduate School of Business, University of Virginia, Charlottesville, Virginia, USA
Introduction We have entered a new era in understanding the dynamics of competitive advantage and the role played by procurement. We no longer talk about suppliers and customers as though they are managed in isolation, each treated as an independent entity. More and more, we are witnessing a transformation in which suppliers and customers are inextricably linked throughout the entire sequence of events that bring raw material from its source of supply, through different valueadding activities to the ultimate customer. Success is no longer measured by a single transaction; competition is, in many instances, evaluated as a network of co-operating companies competing with other firms along the entire supply chain (Spekman et al., 1994). Simply, Ford Motors is as successful as its ability to coordinate the efforts of its key suppliers (and its suppliers suppliers) as steel, glass, plastic, and sophisticated electronic systems are transformed into an automobile that is intended to compete in world markets against the Japanese, the Germans, and other US manufacturers. World class companies are now accelerating their efforts to align processes and information flows throughout their entire valueadded network to meet the rising expectations of a demanding marketplace (Quinn, 1993). We hear from enlightened managers worldwide that success is now measured by cost, speed, innovation, and customer satisfaction.
This paper was first published in Supply Chain Management, Vol. 3 No. 2, 1998. This study was funded in part by a research grant provided by Ernst & Young LLP Center for Business Knowledge, which was administered by Jeffrey Pratt and LeAnne Gershkowitz. The authors appreciate and acknowledge the help and support of Ernst & Young LLP Global Supply Chain Network and especially the guidance and assistance of Christopher Gopal and Gene Tyndall.

International Journal of Physical Distribution & Logistics Management, Vol. 28 No. 8, 1998, pp. 630-650. MCB University Press, 0960-0035

This new view of the world is echoed by Porter (1985), who advocates that the co-ordination of complex global networks of company activities is becoming a prime source of competitive advantage. The secret is to achieve breakthrough changes and improvements so that the expertise of members of the value-added network is shared throughout the system. Now, we see that fill-the-order component makers are being asked to participate in the customer satisfaction delivery process as design partners, risk-sharers, and engines of greater efficiency. These attempts at integrating this value-added network to achieve both customer value and competitive advantage are referred to as supply chain management. The purposes of this paper are to understand better some of the complexities of supply chain management and to offer insights into improving the level of practice. Although we believe a number of advantages accrue to firms that implement integrated supply chain practices and processes, a number of hurdles block the path. Our goal is to highlight the challenges that exist in implementing supply chain management concepts. We will reveal important obstacles that exist for managers who sing the virtues of engaging in collaborative supply chain practices. We will present preliminary results from a supply chain study that sheds light on problem areas across a range of relevant supply chain management processes and practices. We begin with a brief discussion of supply chain management. Next, we discuss the principles on which successful implementation of supply chain management are based. Then, we discuss our preliminary findings taken from supply chain buyers and sellers. Finally, we suggest the conclusions of our exploratory study. Supply chain management The traditional view of supply chain management is to leverage the supply chain to achieve the lowest initial purchase prices while assuring supply. Typical characteristics include: multiple partners; partner evaluations based on purchase price; cost-based information bases; arms-length negotiations; formal short-term contracts; and centralized purchasing. Operating under these conditions encourages fierce competition among suppliers, often requiring playing one supplier against the others, and uses rewards or punishment based on performance. The fundamental assumption in this environment is that trading partners are interchangeable and that they will take advantage if they become too important. In addition, there is a belief that maximum competition, under the discipline of a free market, promotes a healthy and vigorous supply base which is predicated on the survival of the fittest. Under the new paradigm (adapted by such leading US companies as Boeing, Black & Decker, Hewlett Packard, and 3M), supply chain management is redefined as a process for designing, developing, optimizing, and managing the internal and external components of the supply system, including material supply, transforming materials and distributing finished products or services to customers, that is consistent with overall objectives and strategies. Analytically, a supply chain is simply a network of material processing cells with the following characteristics: supply, transformation, and demand (Davis, 1993). Figure 1 shows a typical manufacturers supply chain. The essence of supply

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chain management is as a strategic weapon to develop a sustainable competitive advantage by reducing investment without sacrificing customer satisfaction (Lee and Billington, 1992). Since each level of the supply chain focuses on a compatible set of objectives, redundant activities and duplicated effort can be reduced. In addition, supply chain partners openly share information that facilitates their ability to jointly meet end-users needs. While reduced cost is typically a result, supply chain management should emphasize leveraging the skills, expertise, and capabilities of the firms who comprise this competitive network referred to. Managers have long acknowledged the importance of getting close to their key customers. Now that this logic has extended upstream as well, it is also important to forge close ties to ones key suppliers (Helper, 1991). A sustainable supply chain strategy extends these linkages upstream and down (Biemans and Brand, 1995; Killen and Kamauff, 1995; Leenders and Blenkhorn, 1988). Supply chain strategy development should be part of the business unit planning process which includes efforts aimed at developing and maintaining global information systems, addressing strategic aspects of make-or-buy issues, and accessing and managing innovation with the purpose of protecting and enhancing core technologies (Prahalad and Hamel, 1990). Developing a supply chain strategy is predicated on understanding the elements of sourcing strategy, information flows (internal and external), new product co-ordination, concurrent procurement, teaming arrangements, commodity/component strategies, longterm requirements planning, industry collaboration, and staff development. The new competition Supply chain management represents a paradigm shift that extends ones appreciation for the concepts of co-operation and competition. Co-operation is no longer seen as a process between one set of trading partners. Co-operation now exists along the entire supply chain. GMs Saturn division no longer co-operates with a few select parts suppliers, it finds itself partnering with many different suppliers; its in-bound logistics carrier, its out-bound carrier, and its retail dealer network, some of whom are in Japan. They all must be synchronized to deliver product that permits Saturn to compete favorably against Toyota and Honda. This paradigm shift has been caused by the realities of the new competition (Best, 1990). The basic premise of the new competition is that firms will no longer compete as they have previously. The new competition embodies global networks at the
information flow

Figure 1. An illustration of a manufacturing companys supply chain

S U P P L I E R

Planning & Procurement Forecasting

Manufacturing Distribution & Logistics

Customer Service

Performance Measurement

material flow cash flow

C U S T O M E R

core of which are nimble firms whose managers proactively seek alternative interpretations of events, are eager to think differently about their business, and respond quickly to marketplace changes. No longer is the firm conceptualized as a hierarchy in which independent functional silos compete for scarce resources. Co-operation emphasizes the need to integrate functional silos and views these units as interdependent parts charged with meeting the end-user customers needs. Equally important are the co-operative ties that extend to external buyers and suppliers who work together to maximize the overall effectiveness of the supply chain. What evolves is a network of interrelated firms whose primary objective is to gain strategic advantage for the whole supply chain. We are beyond the debate of whether such close ties between buyers and suppliers carry inherent risks (Newman, 1989). Rather, the more relevant question is how does one effectively manage and leverage the skills and talents of ones supply chain partners (Lewis, 1995). The procurement manager, as a broker of information rather than a transaction manager, becomes a critical participant in the process, guiding both the formation and implementation of longer-term relationships and inter-firm supply networks. Thus, the purchasing professional in the new competition must add breadth while becoming, to a certain extent, a manager of external manufacturing whose responsibility is throughout the supply chain. He/she must gather and filter relevant procurement-related information about products, processes, competition, and macro/micro economic issues that can affect the firms competitive posture. Table I summarizes the revolutionary transformations that the new competition demands and the changes faced by the procurement manager. This perspective is shared by Farmer (1997) in his recent review of the evolution of strategic procurement thinking. From co-operation to collaboration Within the requirements of the new competition, a shift in the level of intensity among trading partners emerges. Co-operation, whereby firms exchange bits of
Evolving role Transaction accountant Administers inter-firm contracts Revolutionary role

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Information exchange broker Guides the information and implementation of partnerships and inter-firm networks Primary point of contact with suppliers Manager of external manufacturing Interface with first-tier suppliers Responsibilities throughout the supply chain Minimizes risks (e.g. supply disruption, Manages and leverages the skills of the incoming defects) to the buying organization supply chain Reacting to external stimuli (reactionary change) Proactively assessing external information Safeguarding proprietary/critical information Enhancing information sharing through the transaction driven value chain early supplier involvement Unidirectional communication Simultaneous two-way communication Cross-functional co-ordination Functional integration Cause and effect problem solving Systems thinking Purchasing mentality World view

Table I. An illustration of purchasings new role

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essential information and engage some suppliers/customers in longer-term contracts, has become the threshold level of interaction. That is, co-operation is the starting point for supply chain management and has become a necessary but not sufficient condition. The next level of intensity is co-ordination whereby both specified workflow and information are exchanged in a manner that permits JIT systems, EDI, and other mechanisms that attempt to make seamless many of the traditional linkages between and among trading parties. Trading parties can co-operate and co-ordinate certain activities but still not behave as true partners. Again, this evolution is a necessary, but not sufficient, condition for total supply chain management. Supply chain management is built on a foundation of trust and commitment (Lee and Billington, 1992). The consensus is that trust can contribute significantly to the long-term stability of an organization (Heide and John, 1990). Trust is conveyed through faith, reliance, belief, or confidence in the supply partner and is viewed as a willingness to forego opportunistic behavior. Trust is simply ones belief that ones supply chain partner will act in a consistent manner and do what he/she says he/she will do. It is this sense of performance in accordance with intentions and expectations that hold in check ones fear of self-serving behavior on the part of the other members of the supply chain (Nooteboom et al., 1997). Commitment is the belief that the trading partners are willing to devote energy to sustaining this relationship (Dion et al., 1992). That is, through commitment partners dedicate resources to sustain and further the goals of the supply chain. To a large degree, commitment ups the ante and makes it more difficult for partners to act in ways that might adversely affect overall supply chain performance. Trading partners throughout the supply chain become integrated into their major customers processes and more tied to their overarching goals. For instance, supply chain partners willingly share information about future plans and designs, competitive forces, and R&D. Partners recognize that their long-term success is as strong as their weakest supply chain partner. For example, Boeing competes for global market share with its engine manufacturer, its landing gear supplier, and the host of firms who supply components, expertise, and knowledge that ultimately are incorporated in the 777 or 7X7. Boeing is successful because its supply chain partners are focused on winning bids from Airbus and its set of European supply chain partners. Figure 2 summarizes the requisite transition from being an important supplier to becoming a supply chain partner. The transformation is depicted as linear

Figure 2. The key transition from open-market negotiations to collaboration

Open Market Negotiations

Co-operation

Co-ordination

Collaboration

Price-based discussions Adversarial relationships

Fewer supplies Longer-term contracts

Information linkages WIP linkages EDI exchange

Supply chain integration Joint planning Technology sharing

although we envision it as a step function since the changes required to move from one level to another require changes in mind set and strategic orientation among supply chain partners. In most instances, firms have already achieved cooperation and co-ordination with key segments of their suppliers and customers. Nonetheless, the movement from co-ordination to collaboration requires levels of trust and commitment that are beyond those typically found in both JIT and EDI relationships. For instance, firms can co-ordinate production and logistics activities to ensure JIT delivery but never reach that next step of integration whereby future design and product performance, and long-term strategic intentions are shared. In one case, Bose and its JIT II partners are further along this continuum and have dedicated unique and non-fungible resources to ensure that Bose not only serves its major customers better but is more successful than its US and foreign competitors in world markets. Simply, one can co-operate and be co-ordinated in a supply chain but not collaborate. Collaboration requires high levels of trust, commitment, and information sharing among supply chain partners. In addition, partners also share a common vision of the future. Collaboration (Anderson and Narus, 1990; Bhote, 1987; Ellram, 1990; Kapoor, 1988; Spekman and Sawhney, 1995) has become a popular topic as an integral facet of supply chain management sourcing strategies. Advocates (Landeros and Monczka, 1989; Womack et al., 1990) argue that the tasks of the buying and selling firms are interdependent and become conduits of information between the manufacturing firm and its preferred suppliers and that collaborative buyer/seller relationships allow purchasing managers to manage these tasks better than before. Collaborative behavior engages partners in joint planning and processes beyond levels reached in less intense trading relationships. A particularly interesting aspect of this belief in relation to the present research is that it suggests that the procurement function can transcend its traditional role of contributing to cost leadership (which remains important but probably not the key driver in supply chain management) and can support other revenue-enhancing strategic initiatives a manufacturing firm might choose such as new product development. Effective supply chain management in the new competition suggests seeking close, long-term working relationships with one or two partners (both suppliers and customers) who depend on one another for much of their business; developing interactive relationships with partners who share information freely, work together when trying to solve common problems when designing new products, who jointly plan for the future, and who make their success interdependent. This notion is supported by Krause and Ellram (1997) who present a review of supplier development efforts. Over the long term, the supply chain that forges virtual firm relationships in those situations where uncertainty is highest and where the cost of success (or failure) is greatest will prevail. The study The fundamental purpose of this study was to examine supply chain management as it applied to developing and sustaining a competitive advantage for the firm. We sought to investigate best practices from the perspective of the

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operations/procurement managers and marketing managers across a set of firms that comprise a supply chain. A key objective was to understand better how to develop and sustain collaborative supply chain relationships. By focusing on buyers and sellers we felt that we would gain insight into how each viewed a range of supply chain processes and practices. Implicit in our analysis is the belief that collaboration within a supply chain can be achieved to the extent the trading partners share a common world view of supply chain management (Spekman et al., 1997). Admittedly, this goal is rather broad; however, we believe that much can be gained from this rather high level approach. The sample This study is part of a larger project and represents the responses of 22 aggregate supply chains from North America, South America, and Europe across five broad industry groupings (life sciences, oil and gas, consumer products, utilities and manufacturing high-tech electronics and automotive). It should be noted that, while the sample represents a wide array of industries, the sample was not generated randomly. Rather, the sample was generated from a list of client firms associated with the studys sponsor. The majority of the sample was taken from North America with strong representation from South American firms. In addition, there was a small degree of European participation. The South American questionnaire was translated into Spanish and then back into English to ensure that the translation matched the original English version of the questionnaire. An aggregate supply chain reflects the response of different levels (e.g. upstream and downstream) within the supply chain relative to a focal company. As Figure 3 suggests, this study extends traditional empirical studies that either asked questions of only buyers (or sellers) and only inferred information about the other trading partner, or attempted to make comparisons between trading partners. The sample is comprised of respondents from different functions in the firm (operations or procurement or materials management and marketing) and from different levels of the supply chain (suppliers and customers). Questions were asked of each respondent relative to their perceptions of their upstream and downstream counterpart. For example, marketers responded to questions about their internal suppliers (i.e. operations) and their external customers, while operations/procurement managers[1]
Sellers Buyers Sellers Buyers

Supplier

Focal Company

Customer

Figure 3. An illustration of supply chain data acquisition process

Upstream

Downstream

responded to questions about their external suppliers and their internal customers (i.e. marketing). From these different perspectives we are able to reflect a supply chain view of certain key dimensions of supply chain management processes and practices, as well as show differences in perspectives across different levels of the supply chain. Our sample consists of 161 (71 per cent response rate) respondents from supplier and customer firms and from operations and marketing personnel within the focal company. A focal firm represents the point of entry for the researchers and it is the upstream and downstream trading partners of the focal firm that comprise the aggregate supply chain. That is, focal firm A might have selected three suppliers that make parts/sub-assemblies for a product that is then sold to three customers. In this analysis, all supply/customer partners identified would become part of firm As aggregate supply chain. Within the focal firm it is very likely that different operations/procurement and marketing/salespeople would be responsible for each different supplier/customer. Thus, we collected data on an aggregate level, depicting the overall supply chain and important factors across a number of supply chain management processes and practices. Our analysis examines mean differences between buyers and sellers across levels of the supply chain. The questionnaire The research instrument focused on a number of factors related to supply chain management. These factors reflect the range of supply chain management issues, running the gamut from gaining insight into issues affecting workflow and information flow among levels of the supply chain, to gaining an appreciation for measures of supply chain performance. Sections of the questionnaire also reflect the continuum of activities from co-operation to collaboration. These different factors help us examine in greater detail aspects of supply chain management that address the transition from co-operation, to co-ordination, to collaboration. For each section of the questionnaire items were generated from past research studies[2] as well as from conversations with practising managers. We approached the supply chain management problem by examining a broad base of literature that encompassed elements of logistics, distribution, marketing, operations, and procurement. Throughout the study, our primary goal was to understand better the factors, processes, motivations, and behaviors that support and encourage supply chain management practices. Rather than present the full set of data for each major section of the questionnaire, we present only the top ten and the bottom five responses from the aggregate data based on mean scores. That is, from each section of the questionnaire, mean scores for each item were generated allowing a rank ordering of items by degree of importance on a scale of 1-7. From this ranking, the top ten items (and the bottom five) are presented for each section. In addition, rather than present tests of mean differences (t-tests) for an exhaustive set of data, we have selected to constrain our analysis to the ten most (and the five least important) salient items across each section. Results were adjusted to

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reflect mean difference scores taken from a wide range of individual items as we computed the t-tests for buyer and seller responses to each item. The findings Supply chain factors To begin, it is important to understand the flows of interaction among supply chain partners. Table II reflects the ranking of information flows along the supply chain and reflects both traditional workflow metrics related to inventory, delivery, and other forms of materials tracking. In addition, the section attempts to capture those information flows that relate to customer satisfaction and the degree to which suppliers and customers are linked. At the bare minimum, we believe that technology is an enabler that facilitates a firms ability to partner with its suppliers and its customers. Table II summarizes the extent to which firms apply an array of practices in their supply chains. It can be seen that the data show somewhat inconsistent results. Three of the top ten items relate to tracking linkages between customers and suppliers (e.g. tight linkages between customers and suppliers, measures of satisfaction, and individual customers managed as accounts). Although measures of customer/supplier satisfaction scored relatively high, most of the informational considerations addressed were purchase orderdriven. All but one of the remaining items relate to information tied to tracking
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Item description

Top ten To what extent do you apply the following practices? Tight linkages between customers and suppliers 5.20 Purchase order information tracking 5.20 Raw material cost, quality, and delivery tracking 4.99 Supplier/customer satisfaction measures 4.63 Finished goods visibility 4.56 Order entry and order-taking technology 4.51 Shipment tracking 4.46 Individual customers managed as accounts 4.45 Process control 4.44 Integrated quality information 4.44 Bottom five Robotics CAD/CAM/CAE Flexible manufacturing cells Electronic data interchange (EDI) customer links Automatic storage and retrieval systems (ASRS) Table II. Information supply chain factors 1.92 2.56 2.74 2.79 2.94

5.26 5.46 5.07 4.75 4.76 4.87 4.93 5.01 5.01 4.71 2.07 2.86 2.94 3.08 3.23

5.12 4.91a 4.95 4.40 4.21 4.02a 3.76 3.71b 3.81b 3.97b 1.53b 2.02b 3.34a 2.19b 2.49b

Notes: a = p 0.05; b = p 0.1; +1 connotes not at all; 7 connotes to a very great extent

the flow of product as it moves from raw material, to work-in-process, to finished goods. EDI and other more sophisticated processes for linking supply chain members were used very little. Interestingly, we begin to sense a difference between what managers say and what managers do. That is, respondents espouse the importance of the customer and the need to be market-focused but the results tend to reflect business as usual with a strong emphasis on measures that relate to more traditional purchasing or transactional focus. It should be noted that sellers, as would be expected, are more concerned with informational factors that reflect customer considerations. However, in each of the measures that track product flow, the buyers scores were lower than the sellers. In particular, information tracking that converged on quality, process control, and other more sophisticated tracking mechanisms such as EDI and CAD/CAM/CAE buyers scores were significantly lower than sellers. One can infer from the data that buyers appear to be less sensitive to information that links levels of the supply chain, in general, and appear to be far less concerned about information that is directly linked to end-customer considerations, in particular. This could imply a silo mentality whereby a concern for customers is someone elses problem. Reasons to engage in supply chain management Respondents were asked the reasons they engaged in supply chain management. This list of questions was generated from conversations with practising managers, trade publications, and academic publications (e.g. Schary and SkjottLarsen, 1995). Table III summarizes the results. The findings reflect many of the common mantras evoked for explaining the virtues of supply chain management, ranging from increased end-customer satisfaction, to gaining a strategic market position, to reduced costs and improved productivity. It is encouraging to see that the reasons reflect both the cost reduction and the revenue enhancement side of supply chain management. Nonetheless, when one examines the differences between buyers and sellers, one gains a better appreciation for the tension that exists within many supply chains. While not statistically significant in every case, the data suggest that buyers tend to focus more on the cost reduction aspects of supply chain management, and view securing a reliable source of supply, reduced lead time, and lower costs as key drivers of supply chain management. Conversely, sellers tend to highlight revenue enhancement and see profits, strategic market position, and customer satisfaction as prime drivers for supply chain management. If we were to focus on the overall means scores alone, we would not begin to develop an appreciation for what might be fundamental differences in world views between buyers and sellers. Criticality Central to the notion of supply chain management is the degree to which each member views the other as essential to the success of the venture and recognizes that each supply chain partner is dependent on the other. Criticality is based on the notion of high recognized interdependence in which one supply

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Item description

Sample mean + (N = 132)

Seller mean (N = 73)

Buyer mean (N = 59)

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Top ten To what extent do the following reflect your reasons to engage in supply chain management? Increased end-customer satisfaction Improved profits Secure reliable source/market for this item Satisfy supplier/customer request Reduce overall operating costs Gain stategic market position Reduce lead time Price paid for item class Improved productivity Increase margins Bottom five Political Regulations and tax implications Environmental Reduce product development costs Local economy

5.78 5.60 5.59 5.56 5.51 5.49 5.40 5.37 5.33 5.30 2.91 3.28 3.82 3.82 3.86

5.78 5.74 5.56 5.60 5.58 5.71 5.29 5.30 5.34 5.29 2.92 3.14 3.41 3.99 3.92

5.71 5.29 5.54 5.44 5.32 5.19a 5.49 5.34 5.20 5.29 2.98 3.41 3.40 3.53 3.93

Table III. Reasons to engage in supply chain management

a = p 0.05; b = p 0.1;

Notes:

+1 connotes not at all; 7 connotes reflects a very great deal

chain member will not act in his own best interest to the detriment of the supply chain. The impetus for this thinking stems from research in transaction cost analysis (e.g. Williamson, 1985) as well as from social exchange theory (e.g. Emerson, 1962). Both streams of literature have been used to explain interdependence between buyers and sellers. From the view of the overall sample, it appears that respondents view both customers and suppliers as important supply chain partners and view each ones participation and input as important. From Table IV, one immediately senses a mutual dependence among supply chain partners. However, the existence of various scores between buyers and sellers tell a different story. Buyers are less likely to view the customer/supplier as irreplaceable and essential to their future business. We believe that this difference sheds insight into buyers traditional commodity mentality if supply chain partners are easily interchangeable and matter little in the future success of the buyers firm, it becomes readily apparent why price paid looms as such a key differentiating factor. This interpretation begs the question of how to educate buyers to appreciate the value and tenets of supply chain management when there is a tendency to discount a potential partners unique contribution. We wonder whether buyers are trained to be more skeptical or whether they are reluctant to acknowledge a mutual dependence for fear of the consequences one might pay, literally. Certainly, to focus on price

Item description

Sample + mean (N = 132)

Seller mean (N = 73)

Buyer mean (N = 59)

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Full order To what extent does this describe your relationship? Items we provide to this firm are important to our company 6.20 The items we provide to this customer are critical to our success 5.61 The annual value of our supplies to this customer is large 5.54 Compared to items we provide to other customers, the value of items provided to this customer is major 5.39 This customer is better than other customers 5.28 This customer is essential to our future success in this business 5.21 This supply chain member can be easily replaced (R) 4.99 Notes: a = p 0.05; b = p 0.1; +1 connotes not at all; 7 connotes to a very great extent

6.19 5.62 5.65 5.45 5.38 5.48 5.32

6.15 5.49 5.33 5.28 5.10 4.80b 4.58b

641

Table IV. Overall supply chain relationships

minimizes the leverage and loyalty engendered from ones supply base. Such behavior ignores the contribution ones suppliers can make to a buyers corporate strategy. Supply chain partner selection Table V summarizes the findings of what respondents value when they select a supply chain partner. The overall sample seeks supply chain partners who are trustworthy, have integrity, and who know our business characteristics that imply fair dealing. Certainly, both trust and commitment serve to offset the risks of opportunistic behavior in which one acts in ones own best interest to the detriment of ones supply chain partners (Anderson and Narus, 1990; Lewis, 1995; Spekman and Sawhney, 1990). These attributes are quite consistent with and support the notions of criticality as stated above. Reputation, improvement in market position, and support of customer service are less important to buyers than sellers. This finding is consistent with buyers implied focus on the cost reduction aspects of supply chain management. Buyers desire partners who know their business but are less concerned that partners offer both parties economic benefit. Does this finding suggest that buyers are looking for economic gain at the expense of their partner? Or does it suggest that buyers are reluctant to pay for value-adding activities? While the answer to these questions is somewhat beyond the data presented here, it is interesting to note that buyers do appear to value trust, commitment, and reliability, and also might seek economic gain at their partners expense.

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Item description Top ten To what extent does this reflect your reasons for selecting a supply chain partner? Is trustworthy Has a high degree of integrity Knows our business Is reliable and consistent in dealing with us Has a strong reputation Supports the importance we give to customer service Has potential synergy with us Is committed to us Improves our competitive market position Offers us both economic benefit Bottom five Offers tax incentives Offers environmental advantages Provides political advantages Reduces engineering changes Helps us achieve workforce cost reductions

Sample mean + (N = 132)

Seller mean (N = 73)

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6.01 5.85 5.78 5.75 5.71 5.66 5.60 5.43 5.29 5.26 1.38 2.72 2.91 3.09 3.40

5.96 5.78 5.62 5.66 5.89 5.84 5.74 5.21 5.44 5.48 2.06 2.74 3.01 3.07 3.47

6.05 5.95 5.95a 5.84 5.53a 5.40a 5.46 5.61 5.07 5.93b 2.01 2.70 2.79 2.91 3.19

Table V. Supply chain partner selection

Notes: a = p 0.05; b = p 0.1; +1 connotes not at all; 7 connotes reflects a very great deal

Supply chain management processes Supply chain management processes explore what respondents say they do in their supply chain interactions. These items explore how the respondents describe their relationships with suppliers/customers and tend to reflect the range of behaviors that support close relationships between buyers and sellers. Interestingly, two major themes dominate this set of questions. Respondents tend to take a more long-term view and state that they expect the relationship to last; that sustaining the relationship is important; and that they have plans to continue the relationship into the future. The respondents also highlight communications processes as an important second theme. They report that communications between the partner firms are frequent and that there is a high level of contact between trading parties. Partners have faith in each other and report that they share a sense of fair play. When we look at key differences between buyers and sellers, it appears that buyers are less willing to devote extra effort to their supply chain relationships. These results are summarized in Table VI. Supply chain practices Where the previous section examines what supply chain members say they do; this section examines what they actually do. The difference in the two sections

Item description Top ten To what extent does the following describe your relationship with this supply chain partner? We expect this relationship to last a long time There is continuous contact between our firm and this customer Sustaining this relationship is important Communication between our organization and this customer is frequent There is a high level of contact between our firm and this customer Frequent communication occurs between the firms We are willing to devote extra effort to this relationship We have plans to continue this relationship We share a similar sense of fair play with this customer We have faith in this customer Bottom five We periodically evaluate the importance of our relationship with this customer We believe that this customer acts in his/her own best interest Risks are shared equitably between us and this customer Personnel from this customer are involved in our product design Rewards are shared equitably between us and this customer
a = p 0.05; b = p 0.1;

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Buyer meana (N = 59)

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6.21 6.14 6.08 6.06 6.05 6.04 6.04 5.98 5.84 5.84 6.27 6.28 6.15 6.10 6.18 6.11 6.28 6.08 5.81 5.78 6.12 6.00 5.93 6.00 5.86 5.97 5.78a 5.80 5.98 5.88

2.77 3.43 4.14 4.15 4.17

2.54 3.13 4.08 4.10 4.18

3.05a 3.77b 4.14 4.16 4.16 Table VI. Supply chain management processes

Notes:

+1 connotes not at all; 7 connotes to a very great extent

is akin to talking the talk and walking the walk. Interesting differences between the two sections exist in that, from the previous section, one gets the strong impression that information is shared openly and that the boundary between firms is quite permeable. However, these findings addressing specific practices suggest that information sharing is less than open and that technical information is shared only when necessary. In addition, mixed signals surface about the importance of price in evaluating ones partner. From Table VII it appears that price is important and there is some evidence that price is viewed as the key attribute in ones evaluative decision calculus. As expected, buyers

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Top ten To what extent does the following describe your relationship with this supply chain partner? We exchange technical information with this customer when necessary In picking this customer, we focused on initial sales price (R) In choosing this customer, we used criteria in addition to initial sales price When selecting this customer, our primary criterion was sales price (R) When initially evaluating this customer, we made the selection based on measures other than sales price We willingly share technology information with this customer Customers to this customer (downstream customers) are an indispensable part of our overall value-added supply chain We examine this customers competence using multiple criteria One area unilaterally evaluates this customers capabilities Training this customer is important Bottom five We have a strong relationship with this customers customers We provide training for this customer We emphasize training with this customer Our organization tends to make customer decisions at higher levels in the firm We consolidate decisions at high levels in this firm

5.30 5.18 5.18 5.11 5.07 4.96 4.77 4.53 4.27 4.24

5.37 5.40 5.18 5.43 5.18 5.14 5.23 4.15 4.40 5.39

5.21 5.05 4.93 4.91a 4.93 4.69 4.09b 4.91b 4.09 4.93

2.76 3.03 3.36 3.59 3.63

3.08 3.32 3.41 3.52 3.39

2.27b 2.60b 3.30 3.61 3.93

Table VII. Supply chain management practices

a = p 0.05; b = p 0.1;

Notes:

+1 connotes not at all; 7 connotes to a very great extent

appear to be more purchase-price conscious than sellers, tend to be less willing to share information, and are less likely to see training as an obligation. We are intrigued by: (1) the differences between these two sections; and (2) the repeated differences that exist between buyers and sellers. It appears that respondents do not do what they say they do and that buyers appear to be reluctant supply chain partners. Across each of the sections,

buyers tend to embrace the notions of collaboration less than sellers and appear to fear the close ties that are required for integrated supply chain management. Effects of performance In order to explore the effects of several of these variables on measures of performance, a series of exploratory OLS regression analyses were performed. Separate regression models were developed to explain the extent to which different measures of performance cost reduction and revenue enhancement (as measured by customer satisfaction) are affected by different supply chain processes and practices. Simply, we examined the extent to which elements of co-ordination, collaboration, and criticality affect two different measures of supply chain management performance. Traditional performance measures would reflect cost reduction while a more enlightened view should also deem revenue-enhancing elements as very important. Two different measures of performance were developed from the questionnaire. One measure focused on the contribution made to cost reduction and the other on the contribution made to customer satisfaction. These two measures, we believe, represent the two extremes of supply chain management. That is, more traditional views of the benefits gained from supply chain management focus on cost reduction and more enlightened views see end-use customer satisfaction as the primary goal of supply chain management activities. While both approaches place pressures on ones supply base, cost reduction tends not to embody a win-win relationship nor does it convey a recognition of the skill and expertise brought to the relationship by ones suppliers. Certainly, it is only by focusing on measures of customer satisfaction that it is possible to assemble a world class supply chain. Burnes and New (1996) advocate a new model of supply chain improvement and our findings are supportive of their third phase of improvement, whereby one focuses on partnership quality and the selection processes chosen reflect the buyers strategic goals and concerns. Table VIII summarizes the findings from the two regression equations. Note that both the sharing of information (a form of collaboration) and criticality both contribute in a positive manner to cost reduction while an element of coordination, order entry, and tracking, negatively affects this measure of performance. These results hold two implications. First, co-ordination, by itself, does not ensure cost reduction. Second, elements of collaboration and criticality contribute to cost reduction and do so with greater impact than any of the key measures of co-ordination used in this study. This supports the notion that coordination is a necessary, but not sufficient, condition for buyers and sellers to achieve a state of supply chain improvement. That is, a metric that focuses on elements of co-ordination to achieve cost reduction is very likely to result in suboptimal outcomes. The regression equation in which we attempt to better understand the factors that explain performance as measured by customer satisfaction tells a similar story. Shared order entry contributes to customer satisfaction while a measure of close linkages between supplier and customer appears to have a negative impact.

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Collaboration what is said Sustaining the relationship Joint planning Frequent interaction Sharing information Collaboration what is done Sharing technical information Training is important Co-ordination Customer supplier linkages Frequent monitoring Order entry and tracking Raw material tracking Criticality R2 Note: = = 1.208
a

Performance cost reduction

Performance customer satisfaction

0.532 (p < 0.00) 1.208 (p = 0.02)a 0.072 (p < 0.00) 0.13 (p < 0.00) 0.096 (p < 0.00) 1.209 (p < 0.00) 0.716 (p < 0.00) 0.27 0.331 (p < 0.00) 0.29

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Table VIII. Regression results showing factors contributing to types of procurement performance

Sharing important information, the importance of sustaining the relationship and the perceived value of training all contribute positively to customer satisfaction. Again, elements of co-ordination appear important, but only as a threshold. That is, workflow-related activities are useful but do not achieve the full benefits of an integrated supply chain and must be accompanied by a richer depth and breadth of shared information to achieve this important outcome. These findings imply that both trust and commitment contribute to satisfaction as the elements of collaboration reported here imply a willingness to share information without the concern for it being used against either trading partner and a longer-term focus to the trading relationship. While the results for sustaining the relationship are counter-intuitive, co-ordination cannot substitute for closer ties between trading partners. The data suggest that interdependence and information sharing become key ingredients in an integrated supply chain whose goal is customer satisfaction. Conclusions A number of conclusions can be drawn from this study. It is apparent from these findings that although we espouse the benefits of supply chain management and sing the virtues of closer ties throughout levels of the supply chain, the results suggest that business has not yet fully operationalized the concept of supply chain management. It appears that buyers tend to be reluctant players and are far more skeptical about the benefits afforded through such close integration. One can infer that buyers consider less favorably the benefits gained and are more likely to highlight the risks associated with heightened dependence on a smaller number of suppliers. We can infer also that buyers think about the gains afforded by an integrated supply chain and are more easily swayed by more traditional purchasing metrics related to cost or initial

purchase price. Buyers consistently view the cost-saving aspects of supply chain management as more important than the revenue-enhancing benefits. They seem to understand, on one level, the importance of customer-driven supply chains; the need to focus on core competencies; and, the importance of leveraging the skills and capabilities of their suppliers. On another level, such rhetoric appears to make buyers uncomfortable, and they easily revert to their cost-driven behaviors in which suppliers are viewed as substitutable and value is determined by negotiation. Again, we hear the theme that a gap exists between the goals and concerns of senior managers and the activities of the procurement function buyers have not fully responded to the challenges of managing suppliers with the intent of gaining the full complement of skills afforded by an integrated supply chain. Exacerbating this lack of strategic thinking on the part of buyers is the finding that buyers and sellers do not share the same values and beliefs regarding the advantages of supply chain management. In fact, the data suggest that buyers and sellers have very little in common, and their world views tend not to converge. While some differences are expected, the divergence in motivations and beliefs relative to supply chain management is quite stark. This suggests that it is not surprising that supply chain management practices are difficult to implement. For buyers and sellers to achieve a common goal there must exist a level of consensus (Spekman et al., 1996). At the very least, buyer and seller must have a shared perspective of the merits of such close ties within the supply chain. Thus, the challenge becomes one of forging a common view in which both sides can accomplish compatible goals. This begs the question as to who will orchestrate the roles and responsibilities of the supply chain members. It would appear that buyers are less able to fill this leadership role as they appear to lack both vision and commitment to the advantages of supply chain management. Without such leadership skills, buyers firms suffer and their potential competitive advantage is diminished. We should note that, although we strongly advocate supply chain management, we readily admit that not all trading relationships should be collaborative and that it is perfectly acceptable (if not absolutely necessary) to engage in arms-length transactions provided that such behavior is appropriate. The data imply that criticality, to a large degree, drives the partnering strategy employed. We say this with the full recognition that criticality affected performance only as it related to cost reduction. It had no impact on performance as it related to customer satisfaction. Nonetheless our findings do imply that trust and commitment do affect customers satisfaction. The spirit of our findings does support other work on supply chain management in which the purpose of such joint effort is to achieve a competitive advantage across the set of supply chain partners. Our findings suggest: The road from open market negotiations to co-operation to co-ordination and to collaboration is a long one and should not be traveled by each and every buyer-seller relationship.

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One must select both partners and supply chain strategies carefully. Coordination and collaboration are different; require different levels of trust and commitment; and, often lead to different outcomes. We have shown also that information technology is an enabler and is key to the development of an integrated supply chain. However, this information must be shared by the partners. While the data seem to suggest that there is a reluctance to share key information among partners, many of these fears subside if partners share similar values and a common vision. Such information sharing heightens the alignment between partners such that effective supply chains share learnings among partners rather than worry about knowledge expropriation. The role of the supply chain champion is to orchestrate this alignment and to ensure that the total supply chain is, in fact, better than the sum of its parts. Adopting the concepts and tenets of supply chain management requires a new mindset. Supply chain management demands that one look at the complete set of linkages that tie suppliers and customers throughout the value chain. True supply chain management demands a business transformation in which managers attempt to mitigate uncertainty and exploit opportunities through the creative use of ones suppliers and customers by evaluating who best supplies value and then leveraging that expertise/capability throughout the entire supply chain. Cognitively, such an effort requires sharing what once might have been considered proprietary information (although it is important to establish limits on what can be shared); relinquishing control to others in the supply chain; and, trusting that your supply chain partners will act in your best interest. Practically, one must develop new capabilities ranging from supplier/customer management to cross-functional integration. While information systems and technology enable and facilitate such capabilities, success hinges on embracing the belief that one cannot succeed acting in isolation and that competitive success depends on the entire supply chain moving in unison, sharing similar goals and objectives. In summary, we have implied that business has yet to crack the code; supply chain partners still do not share a common vision or react to the same set of metrics. If this is true, opportunities have been lost and many challenges remain. For a number of firms, talk is cheap and supply chain management is still only part of todays jargon. A number of firms are sacrificing cost effectiveness, revenue enhancement, and customer satisfaction because they are unable to work effectively across the firms that comprise their supply chains. Figure 4 summarizes the factors that tend to differentiate among levels of commitment and intensity. Relationships that are both strategically important and complex to manage should be treated collaboratively. Complexity can be financial (i.e. a significant dollar commitment) or commercial (e.g. intertwined and/or interdependent technology, joint production processes, shared development). Both aspects of complexity suggest interdependence between trading partners. It is clear from our findings that buyers and sellers do not share a common voice and have moved slowly to bridge the gaps that separate them. We hope that there exist a number of potential supply chain champions who will use our

Complexity
High High Low

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Collaboration

Co-ordination

Strategic Importance Co-operation Open Market Negotiation

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Figure 4. Supply chain management strategy

Low

findings to find synergies among supply chain partners, and to build tighter linkages between customers and suppliers.
Notes 1. The titles of these managers included both procurement and operations (i.e. manufacturing) managers. Our contacts were typically general managers who directed questionnaires to potential respondents who had working knowledge of both external suppliers and internal customers. During the discussion of the results the term buyer represented data taken from either procurement or operation managers. 2. For example, we examined work by Ellram (1990); Landeros and Monczka (1989); Heide and John (1990); Schary and Skjott-Larsen (1995). References Anderson, J. and Narus, J. (1990), A model of distributor firm and manufacturer firm working partnerships, Journal of Marketing, Vol. 54, January, pp. 42-58. Best, M. (1990), The New Competition, Harvard University Press, Cambridge, MA. Bhote, R.K. (1987), Supply Management: How to Make US Suppliers Competitive, American Management Association Membership Publications Division, New York, NY. Biemans, W. and Brand, M. (1995), Reverse marketing: a synergy of purchasing and relationship marketing, International Journal of Purchasing and Materials Management, pp. 29-37. Burnes, B. and New, S. (1996), Understanding supply chain improvement, European Journal of Purchasing and Supply Management, Vol. 2, pp. 21-30. Davis, T. (1993), Effective supply chain management, Sloan Management Review, Summer, pp. 35-46. Dion, P., Banting, P., Picard, S. and Blenkhorn, D. (1992), JIT implementation: a growth opportunity for purchasing, International Journal of Purchasing and Materials Management, Fall, Vol. 28 No. 4, p. 33. Ellram, L. (1990), The supplier selection decision in strategic partnerships, Journal of Purchasing and Materials Management, Fall, pp. 8-14; Emerson, R. (1962), Power dependency relationships, American Sociological Review, pp. 27, 31-41. Farmer, D. (1997), Purchasing myopia-revisited, European Journal of Purchasing and Supply Management, Vol. 3, pp. 1-8. Heide, J. and John, G. (1990), Consensus and collaboration: norm regulated behavior in industrial marketing relationships, European Journal of Marketing.

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Helper, S. (1991), How much has really changed between US auto makers and their suppliers?, Sloan Management Review, Summer. Kapoor, V. (1988), Becoming a just-in-time vendor, Quality Progress, Vol. XXI No. 6, June, pp. 56-9. Killen, K. and Kamauff, J. (1995), Managing Purchasing: Making the Supply Team Work, Irwin Professional Publishing, Schaumberg, IL. Krause, D. and Ellram, L. (1997), Critical elements of supplier development, European Journal of Purchasing and Supply Management, Vol. 3, pp. 21-31. Landeros, R. and Monczka, R.M. (1989), Cooperative buyer/seller relationships and a firms competitive posture, Journal of Purchasing and Materials Management, Fall, p. 10. Landeros, R., Reck, R. and Plank, R. (1995), Maintaining buyer-supplier partnerships, International Journal of Purchasing and Materials Management, pp. 3-11. Lee, H. and Billington, C. (1992), Managing supply chain inventories: pitfalls and opportunities, Sloan Management Review, Spring, pp. 65-73. Leenders, M.R. and Blenkhorn, D. (1988), Reverse Marketing: The New Buyer-Suppl ier Relationship, The Free Press, New York, NY. Lewis, J. (1995), The Connected Corporation, The Free Press, New York, NY. Newman, R. (1989), Single-sourcing: short-term savings versus long-term problems, Journal of Purchasing and Materials Management, Summer, pp. 20-5. Nooteboom, B., Berger, H. and Noorderhaven, N. (1997), Effects of trust and governance on relational risk, Academy of Management Journal, Vol. 40 No. 2, pp. 308-38. Porter, M. (1985), Competitive Advantage, The Free Press, New York, NY. Prahalad, C.K. and Hamel, G. (1990), The core competence of the corporation, Harvard Business Review, May-June, pp. 79-92. Quinn, J. (1993), The Intelligent Enterprise, The Free Press, New York, NY. Schary, P. and Skjott-Larsen, T. (1995), Managing the Supply Chain, Handelshojskolens Forlag, Copenhagen, Denmark. Spekman, R. and Sawhney, K. (1995), Toward a conceptual understanding of the antecedents of strategic alliances in Wilson, D. and Mollen, C. (Eds), Business Marketing: An Interaction and Network Perspective, Kent Publishing, Boston, MA, pp. 157-92. Spekman, R., Salmond, D. and Kamauff, J. (1994), At last procurement becomes strategic, LongRange Planning, Vol. 27 No. 2, pp. 76-84. Spekman, R., Salmond, O. and Lambe, C.J. (1997), Consensus and collaboration: norm regulated behavior in industrial marketing relationships, European Journal of Marketing, Vol. 31 Nos 11/12, pp. 832-56. Spekman, R.E., Isabella, L., Macavoy, T. and Forbes, T. (1996), Creating strategic alliances that endure, Long-Range Planning, Vol. 29 No. 3, June, pp. 346-57. Williamson, O. (1985), The Economic Institutions of Capitalism, Free Press, New York, NY. Womack, J., Jones, D. and Roos, D. (1990), The Machine that Changed the World , Rawson Associates, New York, NY.